How to Create an IRS Payment Plan For Your Tax Debt

The IRS wants to make it as easy as possible for you the payment of your taxes even if you are struggling to pay it in full on the due date. The IRS, for example, increased the threshold amount ($25,000) you have to owe them before the agency files a Notice of Federal Tax lien.

File your tax return on time and pay as much as you can. Then consider the options.

Now consider your options:


If you qualify, it might be in your best interest to get a loan for the amount outstanding.

  • Interest on a bank loan will usually be lower than penalties and interest charged by the IRS.
  • Consider a loan against your assets or even selling some assets to raise enough to pay the IRS in full.

Pay your tax bill.

If you get a bill from the IRS, you’ll save money by paying it as soon as you can. If you can’t pay it in full, you should pay as much as you can. That will reduce the interest and penalties charged for late payment. You should think about using a credit card or getting a loan to pay the amount you owe.

Get a short-term extension to pay.

You may qualify for extra time to pay your taxes if you can pay in full in 120 days or less. You can apply online at IRS.gov. If you received a bill from the IRS you can also call the phone number listed on it. If you don’t have a bill, call 800-829-1040 for help. There is usually no set-up fee for a short-term extension.

Apply for a monthly payment plan.

If you owe $50,000 or less and need more time to pay, you can apply for an Online Payment Agreement on IRS.gov. A direct debit payment plan is your best option. This plan is the lower-cost, hassle-free way to pay. The set-up fee is less than other plans ($31). There are no reminders, no missed payments and no checks to write and mail.

Streamlined Installment Agreement (SIA)

The Streamlined Installment Agreement is available to taxpayers who owe less than $25,000 in tax debt. This includes the total amount of owed tax, penalty charges and interest. The IRS is currently conducting a test, which allows individuals to take advantage of the SIA if they owe between $50,000 and $100,000.

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IRS Online Payment Agreement

Verified Financial Installment Agreement (VFIA)

There are other types of financial agreements that can help individuals and businesses with larger debts than those discussed above. If you are an individual taxpayer owing more than $100,000 or a business with a tax debt of over $25,000 you can take advantage of the Verified Financial Installment Agreement. The main difference between SIA and VFIA is that with the latter you have to disclose your full financial information by submitting a Collection Information Statement. In that statement you will have to give details about your:

  • Assets
  • Debt
  • Income
  • Expenses
IssueCurrent CriteriaStreamlined Test Criteria
Payment Terms72 Months or the number of months needed to pay in full before the Collection Statutory Expiration DateUnchanged
Collection Information StatementIf you previously defaulted on an assessed balance of $25,001-$50,000 you have to prove your ability to payNo verification of ability to pay required any longer
Payment MethodDirect Debit Payment or Payroll Deduction requiredDirect Debit Payment or Payroll Deduction preferred but not required
Notice of Federal Tax Lien
Up to $25,000Determination is not requiredNo Change
$25,000-$50,000Determination is not requiredDetermination is not required with the use of direct debit or payroll deduction agreement
The use of the direct debit or payroll deduction agreement is mandatory in order to qualify for streamlined IAWithout the use of the direct debit payroll deduction agreement the taxpayer still qualifies for IA, but a Notice of Federal Tax Lien determination will be made.

Do you owe a balance of tax, penalty, and interest of between $50,000 and $100,000?

  • If you do, you may experience accelerated processing of your installment agreement request.
  • To qualify your proposed monthly payment must be the greater of your assessed balance divided by 84, OR the amount required to pay your full debt by the Collection Statute Expiration Date.
IssueCurrent CriteriaStreamlined Test Criteria
Payment TermsNoneUp to 84 months or the number of months required to pay the full amount before the Collection Statute Expiration Date
Collection Information StatementNoneIf the taxpayer agrees to make payments by direct debit or payroll deduction no verification of ability to pay is required.
Payment MethodNoneDirect Debit Payment or Payroll Deduction preferred but not required
Notice of Federal Tax LienNoneDetermination is required
Out of business sole-proprietorship debtsNoneApplies
Operating businesses with a trust fund tax liabilityNoneNone
At the moment 90% of taxpayers qualify to use the IRS’s Online Payment Agreement application. The IRS strongly encourages its use and the selection of the Direct Debit Method of Payment.

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Consider an Offer in Compromise (OIC).

An Offer in Compromise lets you settle your tax debt for less than the full amount that you owe. An OIC may be an option if you can’t pay your tax in full. It may also apply if full payment will cause a financial hardship.

How to qualify for Offer in Compromise?

  • You must have filed all of your tax returns for previous years.
  • You must prove that you can’t pay the full tax debt amount, or if you do so will put you in serious financial hardship.
  • You must not be in bankruptcy proceedings.

These are basic requirements for filing an Offer in Compromise, however covering them all does not guarantee that you will be granted an OIC.

Click the link and check all the information you need to apply for an offer in compromise and reduce your debts with the IRS.

Change your withholding or estimated tax.

You may be able to avoid owing the IRS in the future by having more taxes withheld from your pay. Do this by filing a new Form W-4, Employee’s Withholding Allowance Certificate, with your employer.

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. This article cannot serve as a substitute for such professional services or advice. Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation. This article is subject to change at any time and for any reason.

If you are currently dealing with IRS debt, be sure to contact us and discuss which debt resolution option would be most beneficial for your present situation and future goals and opportunities.

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