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Accounting and Tax Tips Blog

IRS payment plan feature

The tax deadline is just a few short weeks away. Your tax return and tax payment are both due on the tax deadline. In instances where your tax bill is more than you can afford to pay, you have the ability to set up a payment plan with the IRS. Here we will walk you through the steps of setting up an IRS payment plan.

Before Your Apply for an IRS Tax Payment Plan

There are several reasons why you may need to set up an IRS payment plan. Perhaps your deductions didn’t work out the way you expected, or you were blindsided by an update to the tax code. Regardless, it is important to know that you have options. However, setting up a payment plan will cost you. In addition, you must apply for a payment plan before the tax deadline or you could face penalties. 

Types of IRS Payment Plans

The IRS offers several different types of payment plans. If you simply need a little more time to pay your tax bill, you can set up a short term agreement known as a full payment agreement. With a full pay agreement, if you pay within 120 days, no fees are assessed. However, any remaining balance after the 120 days will be subject to penalties, fines, and interest until the balance is paid in full. 

Another option is an installment agreement, which allows you to set up automatic withdrawals from your checking account. This is the most affordable installment plan to set up and can be set up online. However, if you prefer to have more control over your payments, you can set up a nonautomatic payment plan, but it is more costly to set up. It is important to note that payments to the IRS must be made on time. Failure to make payments on your installment plan on time could result in the IRS canceling your installment agreement. 

Application Fees

If you agree to pay your tax bill within 120 days, you don’t have to pay an application fee. However, if you need more time, you have to pay a fee. Setting up an installment agreement with automatic withdrawals costs $52 online. It’s $105 to apply via mail or in-person. Under the automatic withdrawal plan, the IRS automatically deducts payments from your funding source. 

If you want more control of your payments, you can apply for a plan without automatic withdrawals. However, the online application fee is $149 for these plans, and It costs $225 to apply by mail or in-person. Qualifying low-income taxpayers can set up an installment agreement for a reduced rate of $43. 

IRS Payment Plan Interest Rate

If you pay your balance in full within 120 days, you won’t have to pay any interest or penalties. However, if you carry a balance passed the 120-day mark, the IRS will penalize you for being late. Late interest penalties can range from 0.5% APR to 25% APR. The IRS applies penalty interest for every month you’re late. However, the IRS might waive the penalty if you have a good reason for being late. 

How to Set Up a Payment Plan with the IRS

The easiest way to set up an IRS payment plan is through IRS.gov. Remember, you need to know how much you owe before you apply, so you should file your return first. It’s also important to file your return on time, or you could face additional penalties. Always file your tax return before the deadline, even if you can’t afford to pay. Otherwise, the IRS may charge you an additional penalty for filing late. 

IRS Payment Plan Form

If you want to apply for an IRS payment plan, you will need to use IRS form 9465.

Apply on IRS.gov

The best way to apply for an IRS payment plan is online. In order to apply online, you need to create an account on the IRS website. You can learn more about creating an account here. Once you have created an account you can set up payment plans and pay your tax bill online.  

Payment Options

The IRS has made it increasingly easy to pay them. Direct deposit from your banking account is the most affordable option. You can also pay by credit card, however for amounts over $100K special conditions may be required by your service provider. Checks and money orders are also acceptable forms of payment, however, they may take longer to process. If you prefer to pay by cash, you can do so at a retail partner. However, there is a $3.99 fee assessed and payments cannot be greater than $1,000. 

Penalties for Late Payments

A late payment penalty may be assessed for the balance due after the due date is not met. This amount starts at 5% but can go as high as 25%. Again, if you can provide a reasonable cause as to why the payment was late, the penalty may be waived. 

Get Tax Help Now

The best way to prevent tax penalties is to file your tax return on time. If you owe money for taxes, apply for an IRS payment plan before the tax deadline to avoid additional penalties. Shared Economy Tax’s team of certified accounting pros are standing by to assist you with all of your tax day needs. Sign up for a complimentary one-on-one strategy session with a tax pro now to get personalized assistance with your tax questions. You can also sign up for our tax tips newsletter using the form below.