What Types of Payment Plans Does the IRS Set Up?

If you have a delinquent tax balance, there are a number of options the IRS will make available to you. The first step, however, is yours. You need to make contact with the IRS so that they can extend one of the various repayment plans.

No need to worry if you do not have an established plan about how to go about making repayment. Part of the job of an IRS Collection Representative is to go over why you owed, fix the problem so that you do not owe again in the future, and to review all payment options.

With the latter in mind, here are five different installment plans that the IRS will discuss with you, depending on your tax balance and your personal financial situation.

Monthly Installment Agreement

Most installment plans can be established where you are required to make a payment once a month until your tax balance is paid in full. Depending on the amount of tax owed, the IRS will attempt to secure as high of a payment as your financial situation dictates. This is for your benefit as well - interest will continue to accrue at a high rate even if you are making timely repayments.

The cost to establish a monthly installment plan is currently $105. This initial User Fee must be paid as part of your first month's payment, although your subsequent payments can be for a lower amount.

Payroll Deduction Agreement

The IRS can also partner with your employer to have your monthly payment taken directly out of your pay. This is an attractive option for taxpayers who may feel more secure with the payment coming out automatically, as opposed to remembering to send it in themselves.

Direct Debit Installment Agreement

Along those same lines, the IRS can also directly withdraw the installment agreement amount from your checking account once a month. The User Fee for a direct debit agreement is $52; half the amount as it is for a regular agreement. Payroll deduction and direct debit agreements also eliminate the need to mail a check or to spend money on postage.

Under new provisions, and according to the IRS, if you qualify, you may have your lien withdrawn after entering into a Direct Debit installment agreement. Your request for lien withdrawal must be done in writing via Form 12277, Application for Withdrawal.

For information on Federal Tax Lien withdrawals in conjunction with direct debit agreements, review the IRS article Adjustments to IRS Lien Policies.

Partial-Pay Installment Agreement

In 2005, the IRS initiated a policy of allowing a taxpayer to pay a monthly installment agreement that would equal to less than the full-amount being paid. This means that taxpayers who cannot full-pay their debt can still pay something, until the time that the collection statute date expires (Generally ten years from the date the tax is assessed).

Before a partial-pay agreement is reached, the IRS will conduct a detailed financial analysis to ensure that an individual does not have the ability to full-pay by borrowing, liquidating assets, or to pay the entire amount over the remaining time left on the statute.

Electronic Funds Transfer Payments

The Electronic Federal Tax Payment System is a tax payment system provided free by the IRS. Once you have enrolled in this system, you can use it to make online payments to the IRS. There is no charge to submit these payments.

The system allows for all types of payments - current and delinquent taxes, payments with filing extensions, federal tax deposits and estimated tax payments.

To get started, visit the EFTPS web site to enroll.

More from this Contributor:

10 reasons why taxpayers owe the IRS

Strategies to reduce your IRS tax debt

The IRS online payment application - Get a payment plan pronto