Owe Taxes and Cannot Pay? Your Options
From Tax Guide.
Tax Guide · Arab, Alabama
IRS Payment Plans: How an Installment Agreement Works
Cannot pay your IRS balance in full? An installment agreement lets you make monthly payments. Learn how IRS payment plans work and how to apply.
The short answer
What is an IRS payment plan?
An IRS payment plan, also called an installment agreement, is an arrangement that lets you pay a tax balance in monthly payments over time instead of all at once.
If you owe tax and cannot pay it in full, the IRS generally prefers that you contact it and set up a plan rather than stay silent. A plan does not erase the debt, and interest and penalties generally keep adding until the balance is paid. It does, however, give you a structured way to catch up.
The terms of any plan, including the payment amount and how long it lasts, depend on your balance and your circumstances. The IRS sets the rules, and they change from time to time, so we confirm the current requirements before you apply.
Your options
What kinds of IRS payment plans are there?
The IRS offers a short-term option for smaller balances and a longer monthly plan, called an installment agreement.
Which one fits depends on how much you owe and how long you need. The comparison below is general.
| Option | How it works | Good to know |
|---|---|---|
| Short-term payment plan | A limited period to pay the balance in full | For those who can pay off the balance within a short window |
| Installment agreement | Fixed monthly payments over a longer period | Interest and penalties may continue while the balance remains |
| Direct debit agreement | The monthly payment comes straight from your bank account | Helps you avoid missing a payment |
| Payroll deduction agreement | Payments are taken from your paycheck | Arranged with your employer |
Dollar limits, setup fees and time limits are set by the IRS and change, so ask us for the current numbers.
Getting started
How do I set up an IRS installment agreement?
You can apply online through the IRS, by mail with Form 9465, or by phone, and a representative can apply for you.
You will generally need your recent tax returns, the amount you owe, and your bank information if you choose direct debit. Some balances need financial information about your income and expenses so the IRS can judge what you can pay.
Have your returns filed first. The IRS generally will not set up a plan when required returns are missing, so if you have unfiled years, see unfiled tax returns before applying.
- File any missing returns.
- Find out the total you owe, including penalties and interest.
- Decide on a monthly amount you can keep up, not just start.
- Apply online, by mail with Form 9465, or through a representative.
- Keep confirmation of the agreement and every payment.
Staying on track
What happens if I miss a payment on my IRS payment plan?
Missing payments, or failing to file or pay new taxes, can put the agreement in default, and the IRS may then demand the full balance.
A plan is a two-way promise. You agree to pay on time, file all future returns on time, and pay new taxes as they come due. If you fall behind, contact the IRS at once rather than hoping it goes unnoticed.
A defaulted agreement can lead to collection steps such as a levy, which is covered in our guide to tax levies and wage garnishment. Adjusting withholding or making estimated payments helps you stay current on new taxes; see how to adjust your withholding.
Your refund in a later year may also be applied to the balance while you owe. Ask about how this works for your agreement.
Other options
Are there alternatives to a payment plan?
Yes, and the right one depends on your finances, your balance and your ability to pay.
Some people qualify for a temporary delay in collection when they cannot pay anything right now. Others may look at an offer in compromise, which is a request to settle for less than the full amount in limited circumstances; see offer in compromise explained. Penalty relief is a separate request; see penalty relief and abatement.
No option is automatic, and results depend on the facts. For the basics of owing tax, see what to do if you owe taxes and cannot pay.
Preparing to apply
What should I know before I choose a monthly amount?
Choose a monthly amount you can keep up through changes in your work and expenses, because a missed payment can put the agreement at risk.
It is tempting to pick a low number that eases the pressure right away. But a lower payment usually means more time and more interest building up. On the other hand, an amount that strains your budget can lead to a default. The goal is a steady figure that fits your real income and bills.
Think through your regular costs first: housing, food, utilities, transportation, insurance and other required payments. The IRS will ask about these if it wants financial details. A representative can help you present the numbers accurately.
- List your income and your regular necessary expenses.
- Leave room for the unexpected.
- Plan for new taxes, so you do not fall behind again.
- Consider direct debit so payments are not missed.
How we can help
Need help arranging a payment plan?
Melton Tax Services can help through our tax representation service.
We can review the notice, explain the options and respond to the agency on your behalf. Do not ignore a balance notice: keep a copy and call us.
We serve Arab and the surrounding area. Call 256-586-4635 or use the contact page. Please bring notices and financial records to the office rather than sending them through the website.
Answers
Questions about irs payment plans
Will the IRS stop charging interest during a payment plan?
No. Interest generally continues on the unpaid balance while you pay it down, and penalties may as well. Paying more when you can reduces the total.
Can I pay off my plan early?
Generally yes. You can pay extra or pay the balance in full at any time, which reduces the interest that builds up.
Do I need to file my return before asking for a plan?
Yes. The IRS generally expects all required returns to be filed before it will set up an agreement.
Does a payment plan stop a levy?
It can affect collection, but the details depend on the situation and the stage of the case. Ask about your specific notice before assuming.
Can a representative set up the plan for me?
Yes. With a signed power of attorney, a representative can contact the IRS and arrange it on your behalf.
Does Alabama have payment plans too?
State balances are handled by the Alabama Department of Revenue under its own rules, so an IRS plan does not cover them. We can help you contact the Department and ask what it offers.
Can I change my payment later?
Often the IRS allows changes to an agreement in some circumstances. Contact it before you miss a payment, not after.
What if I get a new tax bill while on a plan?
New balances need to be paid or added to the arrangement. Ask before assuming they are covered by the current agreement.
Read next
Related reading
Offer in Compromise Explained
From Tax Guide.
IRS Levy and Wage Garnishment: What to Do
From Tax Guide.
Tax Representation
A service Melton Tax Services provides.
Melton Tax Services
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