Taxes are one of the most essential elements of managing finances, but their complexity can often cause a lot of stress. Moreover, unexpectedly high tax bills can be overwhelming to some, who may find it difficult to afford the payments, causing an increase in their debts and credit scores. Fortunately, the Internal Revenue Service (IRS) provides solutions with payment plans that may allow taxpayers to repay these taxes gradually over time.

Understanding an IRS payment plan
An IRS payment plan is an agreement a taxpayer makes with the agency that allows them to pay off the federal tax bills over a period of time. This can be set up online, over the phone, or in person. The specific type of plan one picks depends on the amount one owes and how quickly the taxpayer can make the balance payments. As long as one adheres to the plan’s terms and conditions, the agency typically does not enforce a tax levy or a tax lien. The IRS offers two primary types of payment plans for taxpayers to consider:

• A short-term payment plan allows taxpayers to pay off their tax debt within 180 days.
• Long-term tax payment plans, or installment agreements, allow taxpayers to settle the tax bill for more than 180 days if needed. The payment plan may include monthly installments that extend up to six years.

Eligibility
According to the IRS, most taxpayers qualify for the installment agreement. An individual can also apply for a short or long-term plan through the IRS’ Online Payment Agreement tool, provided the individual meets various criteria for each plan.

• Less than $100,000 owed
  After filing all taxes, those who owe below $100,000 in combined tax, interest, and penalties and can’t repay the tax debt within 180 days are eligible for a short-term payment plan.
• $50,000 or less owed
  This option is for people who owe $50,000 or less in combined tax, penalties, and interest. One might be eligible for a long-term payment plan if one has filed all tax returns and needs more than 180 days to pay the bills.

Setting up a payment plan
One can set up a payment plan in different ways, the fastest option being online.

Applying online
One can apply online with their previously registered IRS account username and password. If one does not have a registered account, one must create an ID.me account to confirm their identity. The taxpayer must also have:

• A valid e-mail address and access to the same
• Access to a smartphone or webcam to verify identity
• Access to a phone or e-mail for multi-factor authentication
• Social Security number or individual tax ID number
• Photo identification like a driver’s license, passport, or state ID

If one needs assistance with the registration process, they can visit the ID.me help page for details.

Applying over the phone or e-mail
If the online tool determines that one is ineligible to set up a plan online, the IRS states that one might still be able to apply by sending in an e-mail or by contacting them with a phone call. The taxpayer needs to file Form 9465 with the agency. One can call the IRS’ current phone line to set up a new plan or revise the existing one. Also, note that business payment plans have different numbers. So, ensure to check the website for these specific details.

Interest charges on payment plans
Splitting tax payments can provide flexibility to manage finances. But, this option may come with additional costs, including interest charges and penalties for late payments. These penalties may continue to accrue until the full balance is paid off. In such cases, the IRS provides relief to those on a payment plan by reducing the failure-to-pay penalty by half. To put it into perspective, the taxpayer would have to incur a 0.25% late-payment penalty on the bill instead of facing a 0.5% penalty.

Fees on the IRS payment plan
The cost associated with the IRS payment plan depends on the plan chosen and the method of application. It also varies based on whether the applicant qualifies for the fee reduction. If an individual is a low-income taxpayer, the IRS waives the user fee, provided they agree to permit the system to make automatic withdrawals from the registered bank account for the associated payment. Those who qualify as low-income taxpayers and are unable to make electronic debit payments may also be eligible for reimbursement of the user fee once the balance is settled. To qualify as a low-income applicant, the adjusted gross income should be at or below 250% of the deferral property level.

Possible alterations to an installment agreement
The IRS’ payment agreement tool allows users to change the monthly payment amount, sign up for automatic withdrawals, reinstate a payment plan, and modify the monthly due date. This tool can benefit taxpayers facing challenges where the new monthly payment plan does not meet IRS requirements and requires adjustments to the payment amount. Also, those who are unable to afford the monthly payment amount may be required to fill out Form 9465 and Form 433-F (collection information statement) to address the situation.

Application process
Taxpayers should note they are not required to pay a third party to apply for an IRS payment plan option. If one decides to seek help from a tax relief company to settle debts, one might have to grant them power of attorney for the application on one’s behalf. It is essential to conduct thorough research before doing so, including reviewing the information available on the Federal Trade Commission’s website.