How long are IRS payment plans? It may come as a surprise to most people, but tax debt is not uncommon. Americans owed an estimated $114 billion in back taxes in 2020 alone. Among federal employees alone, about 318,000 people are estimated to owe the IRS taxes, to the tune of a total of $3.3 billion. So, if you’re a little behind on your payments to Uncle Sam, don’t worry – you’re definitely not alone.
However, you shouldn’t take your situation too lightly, either. While the IRS may have seen a recent decline in resources and manpower, it has been rededicating itself to combating the Tax Gap, and IRS agents command a wealth of options for penalizing taxpayers and coercing payment. If you owe the IRS, paying your taxes back as soon as possible minimizes your penalties and estimated interest, thereby reducing your bill. The longer you wait, however, the larger that bill gets – to the point where a one-time payment might no longer be feasible. That’s when your options are limited to IRS payment plans.
Understanding the Different IRS Payment Plans
The IRS gives taxpayers a myriad of ways to settle their debts. If you cannot make a single lump sum payment, then your payment plan options are generally split between short-term payment plans (repayment period of 180 days or less) and long-term payment plans (any period longer than 180 days).
Short-term payment plans are self-explanatory. They can be set up through the IRS website, and payments can be made in the form of different cheques, money orders, or via the Electronic Federal Tax Payment System (EFTPS), through the IRS’ web portal. You are given 180 days to make several lumpsum payments to cover your debt.
Long-term payment plans are much more versatile, and your options depend on the extent of your debt. If you owe the IRS enough money that 6 months simply isn’t enough to repay your debt, then your payment plan options range between the following:
- Guaranteed Installment Agreements
- Streamlined Installment Agreements
- Non-Streamlined Installment Agreements
- Partial Payment Installment Agreements
- Offers in Compromise
Before you can consider a payment plan to repay your taxes, you must be completely up to date with your tax returns, for at least the last three years, or longer if you’ve never filed your taxes. Certain payment plans also have other eligibility rules.
Guaranteed Installment Agreements
Guaranteed installment agreements are offered to taxpayers with the lowest amount of debt – and total debt of $10,000 or less, not including interest and penalties.
A guaranteed installment agreement is only available to taxpayers who haven’t entered into any other payment plans in the last five years. The length of a guaranteed installment agreement is a maximum of three years. This means that a taxpayer who enters into a guaranteed installment agreement must be able to repay their debt within 36 monthly payments.
Guaranteed installment agreements can be arranged online, and setup is quick and easy. You do not need to file a physical Installment Agreement Request, nor do you need to fill out a Collection Information Statement. Guaranteed installment agreements do not require a credit check or any other financial information.
Streamlined Installment Agreements
Streamlined installment agreements are one “tier” up from a guaranteed installment agreement. These installment agreements are available to taxpayers with a debt of $50,000 or less. Like a guaranteed installment agreement, a streamlined installment agreement can be set up online via the IRS’ website. There are no financial requirements, such as a Collection Information Statement.
However, for any debt over $25,000, taxpayers entering a streamlined installment agreement must agree to monthly automated payments. Furthermore, the duration for a streamlined installment agreement is 72 months (six years). This means the debt must be repaid within 72 monthly payments. Taxpayers can opt to reduce the duration of the agreement but must make larger monthly installment payments as a result.
Non-Streamlined Installment Agreements
Non-streamlined installment agreements are for debts larger than $50,000. In this case, the option to set up a payment plan online is no longer available. Taxpayers with a debt over $50,000 must file a manual Installment Agreement Request, and fill out an extensive Collection Information Statement to provide their financial details to the IRS. Upon evaluation, the IRS will continue to work with you to set up a payment plan depending on your financial means, such as your assets, investments, and current income.
Taxpayers with just barely above $50,000 in debt may be encouraged to make a one-time payment to the IRS to reduce their debt and gain eligibility for a streamlined installment agreement. The process is much quicker.
One of the side effects of a more detailed look at your finances is that the IRS might ask you to repay your debt in less than six years because it finds that you have the financial means to do so. This means much higher monthly payments. Additionally, if you have a history of non-compliance, the IRS may shorten your repayment time under the threat of additional collection actions to prevent future non-payment. As such, non-streamlined installment plans have a variable length but are usually no longer than six years.
Offers in Compromise
An offer in compromise is a rarer payment plan that you must request in detail. Offers in compromise are designed to give indigent taxpayers a chance to settle their debt for less than the full amount owed.
A special Collection Information Statement is required to ascertain eligibility, and few taxpayers are granted a request for an offer in compromise. If your request is granted, the length of your repayment window may differ from case to case but is usually no longer than five years, or the end of the debt’s lifetime (whichever is shorter). In some cases, if a taxpayer’s debt is low enough, they may be allowed to repay the remainder of a renegotiated debt in just one payment.
Offers in compromise are carefully calculated by the IRS based on your reasonable collection potential, which amounts to how much you can afford to pay every month, as well as how much you can expect to round up by selling any of your remaining assets. Contact a tax professional to ascertain your chances of a successful offer in compromise.
Partial Payment Installment Agreements
A partial payment installment agreement is similar to an offer in compromise, yet with a few key differences. While an offer in compromise reduces what you owe, a partial payment installment plan sets a timeframe for your repayment and allows you to pay whatever you can within that period. As such, the IRS reserves the right to raise your monthly installments over the course of a partial payment plan, if your financial situation improves.
The exact term of a partial payment plan depends on how it is negotiated with the IRS. At most, a partial payment plan will encompass the remainder of the debt’s life, with the understanding that you won’t be able to repay it in its entirety, allowing for a lower monthly installment.
How Long Can the IRS Collect on Your Debt?
Federal tax debt lasts for ten years plus tolling periods. These are periods that either add to the debt’s timer or freeze the debt’s timer for the duration of the period. Examples of common tolling periods include bankruptcy proceedings (including an additional six months after bankruptcy has concluded), being in a foreign country for more than six months, as well as time spent deliberating and entering into a payment plan. As such, a debt with the IRS can eventually last much longer than ten years.
Time is of the essence when dealing with tax debt. Still asking yourself “how long are IRS payment plans?” While your debt might be collectible for a decade, the IRS may decide to waste no time in collecting your debt via liens and levies. A payment plan can save you a lot of hassle and keep the IRS from pursuing you, but be sure to pick the right one.