As an Individual taxpayer or Business Owner, you can select to pay off your federal income tax payments in installments by applying for Tax Payment Plan online.
It is similar to getting an Extention to File your Federal Tax Return for 2022.
Let us understand in detail the eligibility criteria and different tax payment plans available by IRS for making tax payments in installments.
Federal Income Tax Payments In Installments
The IRS allows taxpayers to pay taxes over an extended period. There are multiple arrangements to choose to pay your 2022 taxes in installments which are due on 18th April 2023. These arrangements are known as Pay Plans.
Moreover, to benefit from this service, it is necessary to file your taxes. Generally, taxpayers are unaware that the penalties for failing to file a tax return are higher than the penalties for failing to pay taxes.
Furthermore, after preparing your tax return, you can choose convenient tax payment plans. Selecting any of these payment plans enables you to pay your tax debt in full within an extended time or in installments.
Important Note: Even if you opt for Tax Payment Plans, the tax unpaid tax amount is subject to interest and a monthly late payment penalty.
Additionally, you can also download Federal Income Tax templates like Itemized Deduction Calculator 2022, Federal Income Tax Calculator 2022, Recovery Rebate Credit Calculator, Employee Retention Credit Calculator 2021, Paycheck Calculator, and IRS Compliant Mileage Log Template 2022.
Furthermore, feel free to contact us for the customization of this template as per your requirement. We also design new templates based on your needs. You can hire us for our services on Fiverr or directly contact us at firstname.lastname@example.org.
Eligibility for Tax Payments in Installments
Your specific tax situation determines which payment options are available for you. Payment options include:
- Full Payment Plan
- Short-term Payment Plan (paying in 180 days or less)
- Long-term payment plan (installment agreement or paying monthly)
You can qualify by applying online for a long-term payment plan if the tax liability is $50,000 or less along with penalties, and interest.
Moreover, if your tax liability is less than $100,000 along with penalties, and interest you can qualify for a short-term payment plan.
It is solely upon IRS to approve the Tax Payment Plans.
Payment Options and Setup Fees Tax Payment Plans
There are 3 options:
- Pay Now
- Short Term
- Long Term
Under the ” Pay Now” Plan:
- The taxpayer has to make payments in full.
- There is no setup fee.
- No penalties or interest on unpaid tax liability.
When the taxpayer selects “Short-term Payment Plan”:
- There is no setup fee.
- Interest and penalties are applicable on Tax Liability proportionately until the taxpayer makes the total payment.
- You get 180 days or less depending on your tax liability.
Under “Long-term Payment Plan” there are two options:
- Payment Through automatic withdrawals
- Monthly Payments
If you choose payment through automatic withdrawals, IRS charges $31 as a setup fee. For taxpayers having qualified low-income, there is no setup fee. In addition to this, IRS charges penalties and interest until the balance is paid in full. The taxpayer has to sign a Direct Debit Installment Agreement (DDIA) if the payments are above $25,000.
Whereas, if you choose the monthly non-direct payment, IRS charges $130 as a setup fee. Additionally, IRS charges penalties and interest until the balance is paid in full. The taxpayer has to sign a Direct Debit Installment Agreement (DDIA) if the payments are above $25,000.
Federal Income Tax Payments in Installments – System Availability
Online Payment Agreement application sytem is available during a specific time:
Monday to Friday: 6 a.m. to 12:30 a.m. ET
Saturday: 6 a.m. to 10 p.m. ET
Sunday: 6 p.m. to 12:00 a.m. ET
How to Enroll in an IRS Payment Plan?
To enroll for IRS Tax Payment Plans:
Go to Online Payment Agreement.
Click on the “Apply/Revise as Individual” button.
Log in with your ID.me credential. If you do not have ID.me credentials, create a new account.
Insert the applicable details and it will display available payment options for you.
Tax Payment Plans
IRS allows the following Tax Payment Plans.
Full Payment Agreements
This option is available for making Full payment but with an extension of time. The short-term plan allows you to make full payment in one go within 120 days. Whereas, the long-term plan provides more than 120 days to make full payment in one go.
The setup fees are higher if you apply for a tax payment plan by phone at 1-800-829-1040, via mail, or in person. It is advisable to apply online as we will receive instant confirmation from the IRS about the approval of our tax payment plan. The IRS charges a setup fee depending on the approved plan.
If you can’t pay your taxes in full right away or within 120 days, you could be eligible for a monthly plan, such as a long-term payment plan.
With monthly payments, you’d be able to pay your taxes in more than 120 days. Apply for an installment plan through the Online Payment Agreement site. You can submit by phone at 1-800-829-1040 or by mail using Form 9465.
Setup costs are lower for individuals having low incomes. Apply for a low-income certificate using Form 13844 to see whether you qualify for a reduced setup fee.
Partial Payment Installment Agreement
If you are unable to pay your taxes using one of the two options above, you may propose a partial payment installment arrangement (PPIA). The PPIA is a contract between you and the IRS that allows you to pay less than the entire amount of your tax liability before the end of the collection period.
Offer in Compromise Agreement
The Officer in Compromise Agreement, or OIC, is a settlement between you and the IRS that settles your tax burden by paying a lesser sum agreed upon.
With an OIC you can choose the following 3 options: Payment in Full, Short-Term Periodic Payment, and Deferred Periodic Payment.
Payment in Full allows paying in 5 or fewer installments. Short-Term Periodic Payment allows paying the tax liability within 24 months. Whereas, Deferred Periodic Payment allows paying tax liability over more than 24 months, but it must be paid within the IRS’s 10-year statutory collection term.
Temporarily Delay Collection
If you are unable to pay any tax liability because it prevents you from meeting your essential living needs, you can ask for a tax collection delay until you can pay.
Suppose the IRS agrees with your request that you cannot pay any of your tax obligations due to financial hardship. In that case, they may temporarily postpone tax payment collection by listing your IRS tax account as presently not recoverable until your financial situation improves.
Source: IRS Income Tax Payment Plans
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Disclaimer: This article is for educational purposes only and shall not be considered as tax advice. Kindly consult a CPA or tax consultant.