So what happens if you can’t pay your tax liability? For taxpayers who cannot pay all their taxes at once, there is the installment agreement option. IRS Form 9465 is used to request a monthly installment plan. Generally, you can have up to 72 months to pay off the liability. Depending upon how much you owe, the IRS may investigate your ability to pay before granting an installment agreement.
To be eligible for an installment agreement, you must first file all returns that are required and be current with estimated tax payments.
If you owe $50,000 or less in combined tax, penalties and interest, you can request an installment agreement using the web-based application called Online Payment Agreement found at IRS.gov.
You can also complete and mail an IRS Form 9465, Installment Agreement Request, along with your bill in the envelope that you have received from the IRS. The IRS will inform you usually within 30 days whether your request is approved, denied, or if additional information is needed. If the amount you owe is $50,000 or less, provide the monthly amount you wish to pay with your request. At a minimum, the monthly amount you will be allowed to pay without completing a Collection Information Statement, Form 433, is an amount that will full pay the total balance owed within 72 months.
You may still qualify for an installment agreement if you owe more than $50,000, but a Form 433F, Collection Information Statement, is required to be completed before an installment agreement can be considered. If your balance is over $50,000, consider your financial situation and propose the highest amount possible, as that is how the IRS will arrive at your payment amount based upon your financial information.
If an agreement is approved, a one-time user fee will be charged. The user fee for a new agreement is $120 or $52 for agreements where payments are deducted directly from your bank account. For eligible individuals with incomes at or below certain levels, a reduced fee of $43 will be charged, and is automatically figured based on your income. Caution: The IRS is proposing to raise the $120 fee to $225.
But before requesting an installment agreement, you should consider other less costly alternatives, such as a bank loan, home equity loan or other sources of funds. The IRS will charge a $43 fee and you will continue to pay interest on the balance, which is generally higher than bank rates.