If you took an informal poll of citizens of the United States, you’d probably find that April 15th is the worst day, ever. Why? It’s Tax Day! Filing your taxes is a huge pain, and it doesn’t help morale when news outlets are describing the tax season as "miserable" in their headlines.
Filing your taxes is terrible even if you’re getting a refund, so it makes sense that it’s even worse for people who owe money to the IRS. And what if you can’t afford to pay your entire tax bill?
Luckily, the IRS can be understanding. Much like any other debt, you can pay off your tax bill with a monthly repayment plan.
This might seem complicated and dense, but for most taxpayers with a bill less than $10,000, setting up an installment agreement is rather straightforward.
Do I need to do anything before I apply?
You need to file all of your required tax returns before you can apply for an installment agreement. You can also complete the request and mail it in with your tax return. If you’re filing online, many sites (such as TurboTax) will allow you to fill out the form and e-file it along with your return.
How do I apply?
If you owe less than $50,000 in taxes, you can apply for an online payment agreement. Be ready with the regular identifying information: your name, your email address, your mailing address, your date of birth, filing status, and a tax ID or Social Security Number.
You can also request a payment agreement by mail with Form 9465. If you owe over $25,000, you may need to fill out an additional form.
If you owe more than $50,000, you can apply for an Installment Agreement by filing Form 9465 and Form 433-F. You can file these forms along with your tax return.
If you’re filing online with services like Turbotax or H&R; Block, you can fill out Form 9465 with them.
More tax advice from PolicyGenius:
- 4 steps to a better tax season with Evernote
- Self-employment taxes for beginners: a brief overview
- Save hundreds on your taxes by contributing to an IRA
How much will I pay every month?
Depending on how much you owe, you have some leeway as to how much you have to pay per month. The IRS wants you to pay as much as possible per month, which will lower how much interest and fees you’ll have to pay. If you choose not to answer (or choose too low of an amount), the IRS will take your total bill, divide it by 72, and set that as your minimum payment.
Is there a fee?
If you think you can pay the bill within 120 days, you don’t have to pay a fee. In fact, you don’t even need to go through this process (instead, call 1-800-829-1040 to set up a payment extension).
If you set up a direct debit from your bank account, your fee will be $52. Your minimum payment will be automatically deducted from your account every month.
If you want to set up a standard agreement, where you write a check or otherwise manually pay your bill, you will owe $105 in fees. The same fee applies if you sign up to have the monthly payment automatically deducted from your paycheck.
If you have a low income, you may qualify for a reduced fee of $43. The IRS will automatically let you know if you qualify based on your tax return.
Will my request be accepted?
If you owe any taxes from previous years, your request will be rejected. You should contact the IRS and work on a personalized agreement.
If you owe less than $10,000, you are guaranteed to be approved. As long as you pay the complete bill within three years, there is no minimum monthly payment.
If you owe between $10,000 and $25,000, you’ll probably be approved without any additional information needed. You’ll have 72 months (six years) to pay the bill in full. Your minimum payment will be your total bill divided by 72.
If you owe between $25,000 and $50,000, you may need to provide additional information about your financial situation in order to qualify. Your minimum payment will be your total balance divided by 72.
If you owe over $50,000, the IRS will do a thorough review of your finances. You will need to fill out Form 433-F. The IRS may require that you sell some meaningful assets in order to pay off your tax bill. The agreement you strike with the IRS will be unique to you.
Okay, they’ve accepted my agreement. Now what?
Keep paying it until it’s done. Make sure you don’t default—defaulting on your taxes will just make it harder to pay off in the future. Not only will the IRS charge you fees, but they’ll also come after you for the entire bill, not just your monthly payment.
After requesting and accepting a tax payment plan, you cannot request another one for five years. In that time, you must file and pay all taxes on time and in-full.
All future refunds will be automatically applied to your tax bill.
If you cannot, for any reason, make your monthly payment, contact the IRS within 30 days to avoid default.
Photo: Jeff Gamble