Do not let the daunting balance of owed payments intimidate you. If you find yourself owing back taxes, there are options available that can save you money by directly working with the IRS on a tax debt repayment plan. An IRS payment plan allows you to spread out your tax debt over time, making smaller and more manageable payments. While interest continues to accrue and late payment fees may still apply, this approach can provide some relief as you make payments over the course of several weeks or months.
Setting up a payment plan with the IRS can be done online, over the phone, or by mail. The cost associated with entering a payment plan can vary depending on the application method and payment option. The IRS offers three types of debt repayment plans:
- Short-term: You have 120 days to make installment payments. The total owed, including back taxes, interest, and penalties, must not exceed $100,000.
- Extended short-term: You have 180 days to make installment payments. The total owed must not exceed $100,000.
- Long-term: You have 72 months (6 years) to make installment payments. The total owed must not exceed $50,000.
Both the short-term and extended short-term IRS installment payment options do not require a setup fee. Payments for these plans can be made through money orders, debit or credit cards, or direct bank transfers.
The long-term IRS installment payment option does involve setup fees, and you may also encounter fees for certain payment methods. Here is a breakdown of the associated fees for long-term payment plans with the IRS:
- Online application with automatic bank withdrawals: $31
- Online application with check, money order, or debit/credit card payments: $149
- In-person, phone, or mail application with automatic withdrawals: $107
- In-person, phone, or mail application with check, money order, or debit/credit card payments: $225
Individuals who owe more than $25,000 in back taxes are required to make payments through automatic withdrawals while enrolled in a long-term payment plan.
If you choose to pay with a debit card, an additional transaction fee of $2 to $4 per transaction will apply. For credit card payments, there is an additional transaction fee of 2% of the payment amount.
Depending on your tax debt and income situation, you may be eligible for additional IRS assistance with your payment plan. If you meet the criteria as a low-income taxpayer, you might qualify for an IRS hardship program that reduces or eliminates setup and application fees.