Sometimes, there's a chance that come April you will be hit with a tax bill which you are unable to pay in full. Fortunately, there is no need to panic since the Internal Revenue Service has a process in place which allows you to make payments on the tax you owe. Understanding the process and the costs associated with setting up such a payment agreement can help to reduce any lingering anxiety you may have about owing money to the IRS.
An installment agreement allows you to make monthly payments on the balance you owe. To request an installment agreement, complete IRS Form 9465 and mail it to the address listed in the instructions for the form. In addition, you can access the IRS's Online Payment Agreement and set up the agreement online or call the IRS at 800-829-1040 to set up an arrangement over the phone.
The cost for setting up an installment agreement is $105 and can be lowered to $52 if you agree to allow the IRS to direct debit your monthly payments from your bank account. In addition, you may qualify for a reduced user fee of $43 if your income is below a certain level. You can request the reduced user fee completing form 13844 and attaching it to your request for an installment agreement. Also, include your user fee with your Form 9465 or mail it in if you completed your application online. In addition to the fee, you will also be charged a failure to pay penalty of ½ of 1 percent as well as interest on the balance due for as long as it remains unpaid. The installment agreement doesn't mitigate your penalty and interest charges; it only ensures that the IRS will not take collection action against you.
Monthly payments can be made by mail, phone or online. To make a payment by mail, just address your payment to your service center and mail it. Be sure to include your Social Security number, name, date of birth and filing series (1040) on the body of your check or money order. In addition, you can log on to the IRS Electronic Federal Tax Payment System and make a payment online using your credit or debit card. The service is free of charge. You can also arrange for EFTPS to make your monthly payments automatically. To make a payment by phone, access Link2Gov Corporation or Official Payments Corporations at the number referenced in the Resources section. There is a fee charged for both pay by phone providers.
If you owe tax but you believe that you will be able to pay the balance in full within 120 days, it may be preferential to request a 120-day extension instead of an installment agreement. The benefit to filing an extension instead of an installment agreement is that there is no fee associated with filing an extension. As long as you pay the balance within the 120-day time frame, you won't incur a fee. You can request an extension by calling the IRS at 800-829-1040. If, at the end of the 120 days, you have not paid the balance in full, then you should consider setting up an installment agreement so that the IRS does not take collection action to recover the tax owed.