Internal Revenue Service installment agreements allow you to pay your tax bill over time, as opposed to making a lump sum payment to pay in full. As with similar types of debt, interest and penalties accrue on unpaid balances -- even if you're on a payment plan -- so it's best to pay your balance as quickly as possible. To keep your installment agreement in active status, you must agree to file and pay future returns on time.
Installment Agreement Terms
When you establish an installment agreement with the IRS to satisfy your tax debt, you must agree to certain terms to maintain your payment plan. As a condition of your agreement, you may not accrue future tax liabilities while your plan is in effect and you must file future tax returns on time. If you apply for an extension of time to file and file your tax return by the extension due date, you are filing on time and are not in violation of your installment agreement terms.
Requesting Extension to File
You can request an extension to file your tax return by submitting IRS Form 4868, Application for Automatic Extension to File U.S. Individual Income Tax Return. You must make the request before the regular due date of your tax return which is generally April 15. If your extension is timely filed, you'll have until Oct. 15 to file your tax return. Before requesting an extension, you must estimate your tax balance and pay at least 90 percent of the amount by April 15. The IRS will only grant an extension of time to file – not an extension of time to pay.
Defaulted Installment Agreements
You will default on your agreement when you file a return late, accrue a new tax liability or miss an installment payment. If you remain in default status, the IRS may seek collection alternatives, such as bank levies or wage garnishments; however these methods are generally reserved for taxpayers who do not promptly address the default. If you default on your agreement, you have 30 days to remedy any issues. For example, if your plan defaulted because you filed late, you have 30 days to file your return. If the default is cured within this time frame, your agreement will be reinstated.
Installment Agreement Modifications
You can modify your existing IRS installment agreement if you have changes in your financial condition that affect your ability to pay, or if you accrue new tax liability that you need to incorporate into your payment plan. Accruing new balances will default your agreement, so you will need to contact the IRS to include the new balance in your payment plan within 30 days. You can make financial modifications at any time. When you modify your plan with the IRS, you will need to provide Form 433-F, Collection Information Statement, to explain and prove changes in your financial ability to pay.
- IRS.gov: Payment Plans, Installment Agreements
- Internal Revenue Manual: 188.8.131.52: Installment Agreements and Taxpayer Rights
- Internal Revenue Manual: 5.14.11: Deafults and Terminations: IDRS Monitored Accounts
- IRS.gov: Form 433-F: Collection Information Statement
- IRS.gov: Form 4868: Application for Automatic Extension of Time to File