What to know about IRS Payment Plans

Date: July 7, 2023

What is a Payment Plan?

A payment plan is a way to pay the taxes you owe over an extended period of time.

While on a payment plan, the IRS is prohibited from levying your assets. This means, for example, that the IRS will not be able to take your wages or your social security benefits. Yet, you will still accrue interest and penalties on the tax debt that is left due until your tax liability has been paid in full. If you’re able to pay in full now, that is the best way to avoid increasing your tax debt through interest and penalties that may be applied to outstanding tax debts.

 

Who can utilize a Payment Plan?

If you believe you would be able to pay the full amount of taxes you owe but need more time to do it, you may qualify for a payment plan.

You may qualify for a short-term payment plan if you owe less than $100,000 in taxes, penalties, and interest to the IRS. A short-term payment plan requires you to pay your balance within either 90 or 180 days. This type of plan is free to set up. Think of this as a 3 or 6 month extension to pay off your tax debt.

If a short-term payment plan is not the best option for you, you may consider a long-term payment plan. Long-term payment plans require a monthly payment. If completed online, this type of plan costs $31 to set up if paying through direct debits from your bank account. This fee is waived for low income taxpayers. If paying in a format other than a direct debit (such as by check or credit/debit card), it costs $130 to set up an installment agreement if done online. The price is lowered to $43 for low income taxpayers paying in this fashion.

You can also apply for a payment plan over the phone or via postal mail, but the cost increases when using this format.

 

How do I start a Payment Plan?

You will need to create or log in to an ID.me account on the IRS website. Click the link below or search the internet for “apply for IRS payment plan” to log in. From there, you can follow the prompts on the website to set up the type of plan that will best suit your needs.

As previously stated, you can also apply for a payment plan via phone or mail. This is not the preferred method as it costs more and is more difficult.

For more information, visit:

https://www.irs.gov/payments/payment-plans-installment-agreements

 

If you have questions or would like to consult with an attorney, contact the Indiana Legal Services Low Income Taxpayer Clinic at tax.clinic@ilsi.net or (812) 339-7668.

Claire Thiel,
Low Income Taxpayer Clinic Law Clerk

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