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Disclaimer
The content in this page is not a substitute for professional financial advice. Please contact your financial adviser before using the information presented here. </note>Introduction
- The IRS has procedures in place to enable taxpayers who don't have the money to pay the amount of tax they owe to pay over time. In order to benefit from an installment payment arrangement, you need to file your tax return, determine what you can afford to pay, and set up an installment agreement with the IRS.
Step 1: Prepare and File Your Taxes
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- The IRS assesses penalties for failure to file as well as failure to pay. A failure to file penalty can substantially increase the amount you owe the IRS, so regardless of whether or not you have the money to pay what you think you owe, you should file a return by April 15. If it's already past April 15, file your return as soon as possible. Include whatever you can pay with your return.
Step 2: Determine How Much You Can Afford to Pay
- Once you've completed your return, you'll know what you owe the IRS. Next, take a look at your budget to determine how much you can afford to pay to the IRS each month. Installment payment plans will only be approved if the balance due can be paid off within three years. When calculating the payment, remember to consider interest. The IRS charges the federal short term bond rate plus three percent. You are free to pay the balance off early, if your financial circumstances change.
Step 3: Set Up an Installment Agreement with the IRS
- If you haven't paid the full amount due with your return, the IRS will send you a bill. You don't need to wait for the bill to set up the installment arrangement, however.
- File Form 9465 with your return, apply online, or apply by phone at 1-800-829-1040. If you owe more than $25,000, the IRS will also require form 433F
- You'll be charged a fee to establish an installment agreement.
- You can select a monthly payment date; once you've picked the date it's fixed for the term of the installment agreement.
- Permitting the IRS to debit your bank account for the installments will lower your set up fee, and ensure you don't miss a payment.
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