Installment Payments updated 2/3/09

See also: Form 9465, Installment Agreement Request

An installment agreement generally requires taxpayer to pay the entire tax over the term of the agreement (ending with the expiration of the statute of limitations on collection at the latest). If this is not possible, the IRS will enter into a "partial pay agreement" with taxpayer making payments until the statute of limitations expires, and the balance is never collected. The amount of the monthly payment is determined by review of taxpayer's financial information and applying the IRS collection standards, which the IRS typically requires taxpayer to update for IRS review and adjustment as appropriate every 2 years.

IRS on-line payment agreement application (OPA)

For balances under $25,000 (combined tax, penalties and interest) available M-F 6AM-12:30PM EST, Sat 6AM-10PM EST and Sun 4PM-12midnight EST http://www.irs.gov/individuals/article/0,,id=149373,00.html. You need:

  1. social security number (SSN) or taxpayer identification number (TIN)
  2. personal Identification Number (PIN) (you need an IRS notice with your Caller Identification Number (Caller ID) to get a PIN if you do not have one)
  3. you may need information about your income and expenses to determine the monthly installment amount (rent or mortgage statements, pay stubs, utility bills, etc.).

If you recently filed your income tax return and owe, but have NOT yet received an IRS bill, you need:

  1. balance due shown on the return
  2. taxpayer identification number
  3. spouse’s taxpayer identification number (if applicable)
  4. date of birth
  5. Adjusted Gross Income from last year’s income tax return
  6. total tax from last year’s income tax return new 2/3/09

Financial information

The IRS requires you to provide them with financial information in order for it to determine your ability to pay your tax. If cash flow exceeds "necessary and reasonable living expenses" (as determined by the IRS), the IRS requires the excess to be paid monthly. "Cash flow" is the actual cash available to support the household, including e.g., child support and gifts. See IRS collection standards regarding calculation of living expenses. Payments continue until the tax is paid in full or the limitations period expires, and penalties and interest continue to accrue. The IRS has extensive collection standards to determine necessary and reasonable living expenses.

The IRS will enter into an installment agreement even if the installment payments will not pay the tax, penalties, and interest in full before the limitations period ends. Previously, the taxpayer was required to extend the limitations period. The IRS will continue to review the taxpayer's financial situation to see if increasing the payment amount is appropriate during the period.

Scheduled increases and review

The IRS may schedule increases in the monthly payments, e.g., when your car loan is paid in full you presumably will have more money available to make increased payments to the IRS. By that time you may need to trade cars and incur a new monthly car payment and would have to file updated financial information and pay a $24 fee to have the installment agreement revised.

Taxpayer requested changes

You can also request a change in the installment amount (generally a decrease as you can pay more without permission or requesting a change, and then drop back to the agreed amount if necessary, again without permission). There is a user fee for this change, see below.

You can request to skip a monthly payment for a VERY good reason, e.g., your car had a major repair which you can not pay for if you make the IRS installment payment, and you can not get to work unless the car is repaired. If that occurs you should contact the IRS as soon as possible, but should do so rarely and only if there is no other alternative. Do NOT skip a payment without talking to the IRS or you will "default" your installment agreement and the IRS will use enforced collection (e.g., a levy on your bank account or wage garnishment).

User fees

The IRS announced the first increase in user fees for installment agreements since the fees were implemented in 1995 (including those made using the Online Payment Agreement application on the IRS web site). IR-2006-176, Nov. 13, 2006. Effective January 1, 2007, the following fees will increase:

All taxpayers entering into an installment agreement will automatically be considered for the reduced user fee using information the IRS already has on hand from the taxpayer’s current tax return. Those who qualify will be charged the reduced $43 fee for all installment agreements established through any method. These include the Online Payment Agreement application on the IRS Website at IRS.gov, telephone, face-to-face or mail. (IR-2008-33, March 4, 2008) updated 3/10/08

Default updated 6/6/09

Failure to make an installment payment, or file or pay the tax on a return will default your installment agreement, and the IRS may use enforced collection.

Once you default on an installment agreement, it is substantially more difficult to get the IRS to agree to another installment agreement.

IRS Commissioner Doug Shulman announced 5 specific steps to offer leniency to taxpayers owing taxes http://www.irs.gov/newsroom/article/0,,id=202244,00.html, including allowing taxpayers to miss an installment agreement payment without automatically having their agreement suspended (no guidance was provided if more than 1 payment could be skipped). new 1/8/09