Could You Qualify for an IRS Payment Plan for Your Tax Debt?

Author : Camputaro & Associates
Sep 01, 2021

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People say that taxes are one of the few predictable things about life. And while you certainly can predict that you’ll need to file your taxes every year, sometimes, the amount you owe can come as quite a shock. If you’ve found yourself facing a large tax bill, you might be left wondering exactly how you’re going to pay it. Taxes are due by the filing deadline every year, and you’re expected to pay it all in one lump sum. But what if you can’t? Keep reading to learn if you could qualify for an IRS payment plan.

Never Avoid Filing

Before we get into the IRS payment plans, we want to make one thing abundantly clear: You should never avoid filing your return in the hopes of keeping your tax debt off the IRS’s radar. While you might go unnoticed for a short amount of time, eventually, your failure to file will catch their eye. Then, in addition to your initial tax debt, you’ll also have fines and interest to pay.

It is always better to file on time (or, better yet, early) and request a payment plan for settling your tax debt. The IRS is incredibly willing to work with taxpayers who are forthright and proactive regarding their taxes. So, if you are earnestly trying to pay your taxes and you have a solid history of paying your tax bills in the past, odds are high that you’ll qualify for some form of repayment plan. Now, let’s discuss what the different IRS payment plans are.

Short-Term Payment Plan or Extension

Anyone can request an extension for filing their tax return—but this is not the same as getting an extension to pay. If you file for a tax extension, you receive an extra six months to file your full tax return; however, any taxes you owe are still due on April 15th. If you also need an extension on your payment, you’ll have to submit a different request.

You can request a payment extension or a short-term payment plan from the IRS by filling out their payment agreement application from the IRS’s website. If you’re working with one of our CPAs, we can also contact the IRS by phone or submit the application for you. A short-term payment plan gives you 120 days, or roughly four more months, to pay off your tax bill. This is a good solution for those who simply need a little more time to pull together the necessary funds—for example, liquidating some assets or securing a loan—to pay their tax debt.

There’s no setup fee or application fee for short-term payment plans. However, it’s important to note that your tax debt will continue to accrue interest until it’s fully paid. This means that it’s in your best interest to pay as much as you can upfront, then settle the rest of the debt as quickly as possible.

Long-Term Payment Plan

What if 120 days isn’t enough for you to acquire the funds you need to pay your debt? The link above can also be used to apply for a long-term payment plan, or you can request one by calling the IRS directly. Long-term payment plans require you to make monthly payments on your tax debt until it’s fully repaid. If you qualify for a tax refund while on a long-term payment plan, the refund is retained by the IRS and used towards paying off your debt.

Long-term payment plans require more effort (and more paperwork) to get—and the more you owe in taxed, the more paperwork it takes. However, most people still qualify for this type of repayment plan. The simplest option is usually to set up a payment plan with payroll deductions or direct debit. This allows the IRS to withdraw the established payment every month until your debt is paid off.

As with a short-term payment plan, your tax debt does still accrue interest each month. However, if this is the first time you haven’t paid your taxes in full, you can request a first-time abatement of those penalties from the IRS once you’ve completed your payment plan.

Offer in Compromise

The final settlement option with the IRS is an offer in compromise (OIC). These are quite rare and are difficult to qualify for. They’re typically reserved for those with little to no income, no prospects for income in the future, and very few assets.

For those who qualify, you can settle your tax debt for less than you actually owe. Requesting an OIC requires you to fill out an application packet, along with an offer of how much you believe you can afford to pay. The IRS will thoroughly investigate your finances to decide if they believe your offer represents the most they can reasonably expect to collect from you. If so, your offer will be accepted, you’ll be expected to pay the full amount, and you’ll be required to file and pay your taxes every year for the next five years. If you hold to this agreement, any remaining tax debt will be waived.

If you’re struggling with a large tax bill, contact our tax experts today for assistance with requesting an IRS repayment plan.

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Camputaro and Associates
Certified Public Accounting Firm
136 N. Orchard Street, Suite 8
Ormond Beach, FL 32174
(386) 255-2511