How to Set Up a Payment Plan With the IRS

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May. 17 2021, Published 1:28 p.m. ET

The extended tax deadline has come and it will be gone before we know it. For some taxpayers who can't afford to pay their owed taxes in full by the deadline, setting up a payment plan with the IRS might be the best bet.

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Payment plans are subject to certain interest rates and fees, but for some, it's the only option. Here's how to go about setting up an official tax payment plan. 

Apply for a payment plan online, over the phone, or via mail

Most people can apply for a payment plan online using the Online Payment Agreement tool from the IRS. Individuals have access to certain payment plans depending on their situation. Options include a short-term payment plan (if you owe less than $100,000 total) or long-term payment plan (if you owe less than $50,000 and have filed your returns). Taxpayers can complete a short-term payment plan in 120 days or less.

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Click on the box that says "Apply/Revise as Individual" to get started. You will need to sign up for an account or use your previous login information to proceed. Be prepared to provide numerous personal identification methods, like your social security number and the address of your most recent return.

If you're applying as a business, you must owe the IRS less than $25,000 to be eligible for a payment plan. Use the separate application button for businesses to apply.

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If you're applying as an individual but you aren't eligible to apply online because you owe too much, fill out and mail IRS Form 9465, Installment Agreement Request or call 800-829-1040.  

Non-web options cost $225 to set up without low-income considerations. 

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Costs and fees associated with IRS payment plans

If you're applying for a long-term payment plan with automatic withdrawals, you will pay a $31 setup fee. Monthly non-automatic payments require a $149 setup fee, or a potentially reimbursable $43 fee for low-income individuals. Short-term plans are free to set up.

Whatever plan you choose, you will have to pay accrued penalties and interest until you complete your full payment. This makes IRS payment plans costlier than paying your taxes in full.

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IRS interest rates are three percent for underpayments plus the federal interest rate. Penalties depend on whether you've filed your taxes

Here's what to do if you need to change your payment plan structure

It costs $10 to revise a payment plan that's already in place. Low-income individuals can have this reimbursed. Log in to your account and revise your plan type, payment date, and monthly payment amount before submitting your changes.

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Avoid defaulting on your payment plan

To avoid defaulting on your payment plan, pay the monthly amount (or more) on time each month. File all of your returns and pay future tax responsibilities on time. Let the IRS know when you move.

If you do default, you can potentially reinstate the installment within the 30 days following your CP523 notice of default from the IRS, or issue a levy within 90 days.

Any future refunds you receive will go toward your existing tax debt until it's paid off. 

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