IRS Tax Payment Plan Overview

kienitz tax law payment plan

If you’re behind on your taxes, it’s only a matter of time before the IRS sends a letter informing you of your tax debt and the additional money you own in interest and penalties. But for most taxpayers, it’s impossible to pay off their tax debt quickly. After all, if they had the cash to pay off their tax debt, their tax debt probably wouldn’t exist in the first place.


The IRS recognizes that many taxpayers’ only hope to pay off their tax debt is to pay it off over time. The IRS has a system in place where the taxpayer can set up a payment or installment agreement, which allows the taxpayers to make monthly payments and pay off the tax debt over a period of up to six years. The following blog post provides an overview of IRS payment plans and how to apply for one.


Payment Plan Eligibility


First and foremost, in order for a taxpayer can get a payment plan, they must meet the eligibility requirements.


The first requirement is for the taxpayer to be current on all tax returns. The IRS will refuse to set up a payment plan with the taxpayer if even a single year of tax returns still needs filing. When you think about it, it makes sense. You can’t set up a tax payment plan unless you know the exact amount owed. And the only way to figure out the exact amount owed is to prepare and file all outstanding tax returns.


The second requirement is that the tax debt must be $50,000 or less. This includes all back taxes, interest and penalties and only applies to individuals. For businesses, the tax debt must be $25,000 or less and this amount includes payroll taxes, interest and penalties.


Finally, payment plans are only for taxpayers that will need more than 120 days to pay their tax debt in full. If the taxpayer can pay off everything in 120 days or less, they should not set up a payment plan, but rather, a Short Term agreement. Taxpayers can apply for this Short Term agreement by going to the IRS’ Apply for an Online Payment Agreement for Individuals and Businesses page.


Applying for a Payment Plan


To apply for a payment plan as an individual, the taxpayer must provide his or her:


  • Name
  • Date of birth
  • Filing status
  • Social security number
  • E-mail address
  • Mailing address used for the most recently processed tax return


If an individual is applying as Power of Attorney on behalf of another individual, the applicant must provide:


  • The taxpayer’s social security number or the Individual Taxpayer Identification Number
  • The Power of Attorney’s Centralized Authorization File number
  • Caller ID from notice or the Power of Attorney’s signature date on Form 2848
  • The taxpayer’s last year’s Adjusted Gross Income


When applying as a business, the following information is required:


  • Employer Identification Number
  • Date the Employee Identification Number was assigned
  • Mailing address used for the most recently processed tax return
  • Caller ID from notice


If the payment plan is approved by the IRS, the taxpayer must pay a setup fee ranging from between $31 and $225, depending on the taxpayer’s method of payment and income level. However, there is no set up fee if the taxpayer qualifies for a Short Term agreement.


In Closing

Unlike some other tax issues, it’s usually not critical to have professional tax advice to set up an IRS tax payment plan or Short Term agreement. However, consulting with a tax accountant or attorney can be very helpful in the application process and give you a better picture of your legal and financial options concerning your outstanding tax debt.



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