When you’re faced with a significant amount of tax debt, the first step you can take is to consider working directly with the IRS. You can often set up a tax debt repayment plan that allows you to make regular payments that gradually reduce your overall debt amount.
You can set up a payment plan with the IRS online at IRS.gov, over the phone, or by mail. You can typically find the instructions for getting on an IRS installment payment plan in any of your tax debt notices you receive from the IRS.
There are three IRS installment payment options:
- The short-term payment option gives you 120 days to pay regular installments, but your total amount of back taxes, interest, and fees must be lower than $100,000. There are no setup fees.
- The extended short-term payment option extends your payment period to 180 days, and you cannot owe more than $100,000 in back taxes, interest, and fees. There are no setup fees.
- The long-term payment option allows you to make payments for up to 72 months, and your total owed amount can’t be any higher than $50,000. You must pay setup fees.
With all three options, you can make your payments using a money order, debit or credit card, or direct payments from your bank account. The setup fees for the long-term payment option vary by application and installment payment type:
- Pay $31 to apply online and pay with automatic bank account payments.
- Pay $149 to apply online and pay with a check, money order, or a debit/credit card.
- Pay $107 to apply in person, by phone, or by mail and pay with automatic account payments.
- Pay $225 to apply in person, by phone, or by mail and pay with a check, money order, or debit/credit card.
If you meet the qualifications of a low-income taxpayer, you may qualify for additional IRS help for a payment plan through an IRS hardship program. This option reduces or eliminates setup and application fees.
In addition to these fees, you may also be subject to a $2 to $4 fee to pay with a debit card and a 2% transaction fee when you make a payment using a credit card. Note that people who owe more than $25,000 must opt in to automatic withdrawals.
The longer you wait to pursue tax debt relief, the more expensive and financially detrimental some of your remaining options can be. But you can get on an IRS payment plan at any time, allowing you to pay off your tax debt in small increments over time. Interest will still accrue every day and you may still be subject to late payment fees.