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Installment Agreements

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Installment agreements are one of your options if you can’t pay your taxes in full when they’re due. These agreements are payment plans that allow you to pay your debt over a time you establish with the IRS. You must stay current with monthly payments, timely file your tax returns, and make estimated tax payments. Future refunds will be applied to unpaid taxes until the tax balance is paid in full.

There are several types of installment agreements:

  • Installment Agreements: Guaranteed, Streamlined and Routine; and
  • Partial Payment Installment Agreements.

What does this mean to me?

You have a balance on your tax account and you may have chosen to pay the balance via monthly payments to the IRS. This letter or notice may be confirming that your requested installment agreement has been accepted or reminding you to make your monthly payment. The letter or notice could also be stating that your proposed installment agreement was rejected, stating you defaulted on a current installment agreement, or requesting updated financial information. It is important that you carefully read the letter or notice you received so you can respond accordingly, or call the phone number on the notice or letter immediately if you have questions. For specifics, see Installment Agreements and Additional Information on Payment Plans.

How did I get here?

You have a balance on your tax account and you may have chosen to pay the balance via monthly payments to the IRS. In doing so, you have agreed to stay current with all monthly payments, filing of tax returns, and estimated tax payments. Also, you understand that future refunds will be applied to unpaid taxes until the tax balance is paid in full.

What are my next steps?

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Is it from the IRS?

If it’s from the IRS, the notice will have instructions on how to respond. If you want more details about your tax account, you can order a transcript. Also, review your notice or letter to see if there is a specific website link to visit for additional information. This is usually located at the end of the notice or letter.

If it’s from another agency, such as a state tax department, you’ll need to call that office for an explanation.

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Before you consider an installment agreement

Review the tax debt to be sure you owe it. If you don’t believe you owe the tax, now is the time to talk to the IRS about it. If you’ve received an IRS notice, start by calling the number on the notice to discuss the amount you owe.

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Before you request an installment agreement

  • File all required tax returns (even if you can’t pay); and
  • Review your bills to figure out how much you can afford to pay the IRS each month.

The IRS will only agree to an installment agreement if you’ve filed all your returns. Once you’ve entered into an agreement, you’ll have to pay all future taxes on-time or your agreement may default.

You may wish to consider other resources before setting up an installment agreement. Can you borrow from a financial institution or a family member to pay the balance? If so, it will probably cost you less money since the IRS charges you interest even though you’re on a payment plan. You may also avoid some penalties and associated interest, by paying the IRS sooner. Compare the costs for your situation.

Some Common Types of Installment Agreements (IA)

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Guaranteed Installment Agreements

You have the right to an agreement without submitting a financial statement if:

  • The amount of tax you owe (not counting interest and penalties) is less than $10,000;
  • You (and your spouse, if you filed a joint tax return) have filed and paid all taxes due for the last five years;
  • Neither you (nor your spouse, if you filed joint) have had an installment agreement with the IRS in the previous five years;
  • You can pay the full amount you owe within three years;
  • You agree to pay the liability before the period for collecting the tax expires; and
  • You comply with all tax laws during the term of the agreement
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Streamlined Installment Agreements

There are two types of streamlined installment agreements, depending on how much and what type of tax you owe. For both types, you must pay the debt in full within 72 months (six years), and within the time limit for the IRS to collect the tax, but you won’t need to submit a financial statement.

  • Assessed tax liability under $25,000 (include all assessed tax, penalty and interest in computing the balance due). This is available to individuals, businesses that are still operating, and businesses that have gone out of business.
  • Tax liability from $25,001 to $50,000 (include all assessed tax, penalty and interest in computing the balance due). This is available to individuals and out-of-business sole proprietors. Note: To get this type of agreement, you must pay through either a direct debit or payroll deduction agreement. You can apply for a streamlined agreement online or by mail.
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Partial Pay Agreements

In this situation, you must have some ability to pay your taxes but can’t pay in full within the remaining time the IRS has to collect. The IRS may allow you to make payments until this collection period expires.

Contact the IRS at 800-829-1040 (TTY/TDD 800-829-4059) or the number on the notice to discuss this option. If you’re in this situation, you might also want to consider submitting an offer in compromise to settle your taxes instead of an installment agreement. You can apply for a partial pay agreement online or by mail.

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Routine Installment Agreements

If you don’t meet criteria for guaranteed or streamlined, you can still request an installment agreement from the IRS. You can request a routine installment agreement by calling the IRS or by mail, but not online. You will need to agree to pay the liability in full before the period for collecting the tax expires.

I need more information

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Where can I get additional help?

Documentation

The IRS may ask you for supporting documents for your income, expenses, and other amounts you owe (for example, home and car loan payments, other obligations). The IRS publishes and uses national and local standards to determine allowable monthly expenses and arrive at the appropriate monthly payment. If you feel you should be allowed more than the standard amount, provide reasoning with your application.

The Six Year Rule

Generally, if you only owe individual income tax, you may qualify for the Six Year Rule. You’d need to provide financial information but not proof of reasonable expenses. You must stay current with all filing and payment requirements, including projected penalties and interest on the tax debt, and fully pay the balance due in six years (72 months) and within the collection statute — the time the IRS has to collect the amount you owe.

The One Year Rule

If you can’t pay your debt in full within six years, you may be given up to one year to modify or eliminate excessive necessary expenses. By modifying or eliminating these expenses, you may be able to pay the liability, plus accrued interest and penalties, within the six-year limit.

If none of these options seems to fit your circumstances, you can call the IRS and discuss your situation.

Fees

The initial fee for setting up an installment agreement varies depending on the payment method you choose. These fees are subject to change and are listed on the Online Installment Agreement page.

Low-income taxpayers may be able to have the fee waived at the time of entering into the IA if they choose to pay by direct debit, or if not, they may be able to get the fee reimbursed once they meet the terms of the agreement.

How to apply

  • Online: The simplest way to get an installment agreement is to use the IRS Online Payment Agreement program, if you meet the criteria. Follow the instructions to see if you qualify. The system will give you an immediate answer. If you don’t qualify for the Online Payment Agreement program, follow the directions to learn available alternatives.
  • By mail: If you can’t or choose not to use the online system, you can complete the paper Form 9465, Installment Agreement Request, and submit it with all required documents to the address in the instructions.

Note: For an individual routine installment agreement, you also will need to submit a Form 433-F, Collection Information Statement.

What if the IRS rejects my request for an installment agreement?

The IRS does reject payment plans sometimes — if this happens to you, you have the right to appeal. You must request an appeal within 30 days by submitting Form 9423, Collection Appeals Request. The IRS is prohibited from taking enforcement action while the installment agreement is pending and for 30 days after rejection or termination, which gives you time to request an appeal.

If the IRS accepts your request for an agreement, be sure you follow the instructions and make your payments on time every month. Contact the IRS immediately if you can’t make a payment.

You need to know that even with an installment agreement, your future refunds will be applied to your tax debt until it is paid in full. This helps pay your taxes off as quickly as possible.

If you default, the installment agreement may be terminated, and the IRS may begin taking enforcement action. It’s important to select the agreement that meets your personal situation and allows you to make your payments every month and on time.

A common source of tax debt is due to underwithholding. If this is happening to you, consider revising your Form W-4, Employee’s Withholding Allowance Certificate, to avoid this problem in future years. If you’re self-employed, make your estimated tax payments throughout the year.

Related Forms & Letters

  • Form 433-D, Installment Agreement
  • Form 2159, Payroll Deduction Agreement
  • Form 9465, Installment Agreement Request
  • Instructions for Form 9465, Installment Agreement Request
  • Letter 2849, Direct Debit Installment Agreement (DDIA) – Installment Agreement Acceptance
  • Letter 2850, ICS Installment Agreement (IA) Confirmation Letter
  • Letter 5977C, Automated Letter – Installment Agreement (IA) Accepted; Terms Explained OPA/VBD
  • Notice CP 523, Default on Your Installment Agreement (IA) Notice – Intent to Terminate Your IA
  • Notice CP 521, Monthly Installment Agreement (IA) Payment Reminder
  • Letter 2273C, Installment Agreement (IA) Accepted; Terms Explained
  • Letter 3217C, Automated Letter – Installment Agreement Accepted; Terms Explained.
  • Notice CP 523H, Installment Agreement (IA) Default Notice with Intent to Levy – Shared Responsibility Payment (SRP)
    • Note: From a Taxpayer point of view, if placed on digital content site, then the title should read Notice CP 523, Intent to Terminate Your Installment Agreement (IA).
    • Understanding Your CP523H Notice
  • Letter 2272C, Installment Agreement (IA) Cannot be Considered/Extension to Pay Cannot be Considered
  • Letter 0757C, Installment Privilege Terminated
  • Letter 2975, Notice of Defaulted Installment Agreement Under IRS 6159(b)
  • Letter 4052, Rejection of Proposed Installment Agreement
  • Letter 5259, Notice of Installment Agreement Modification