First and foremost, it’s essential to establish your tax assessment date. This is the date listed on the IRS’s notice regarding your overdue balance. This date is critical because, barring any tolling periods, it is the date on which your debt will expire ten years from now.
Tolling periods are when the IRS cannot collect your debt or enforce collection. These range from being on tour for the military to filing for and being involved in an ongoing bankruptcy case. Tolling periods freeze time on your debt’s collection statute, meaning ten years can become twelve or more.
Until your debt expires, the IRS can resort to different methods to incentivize or coerce payment, including penalties, interest, and collection actions.
In addition to the initial notice of overdue tax payments, the IRS will also issue a warning regarding penalties accrued on your tax account. Failure to pay taxes by the deadline on your notice will result in a penalty of 0.5 percent of your total unpaid taxes each month, up to 25 percent.
Your debt can also accrue interest. Interest rates are determined by the IRS’s quarterly federal short-term interest rates, plus three percent. That is typically more than what you’d pay on a bank loan, so you are incentivized to take care of your tax debt quickly. Your payment options are defined by the IRS’s payment plans.
IRS payment plans come in three main options: full payment, a short-term plan (paying within 180 days), or a long-term plan (paying over 180 days).
Setting up a payment plan online is easier and cheaper than any other method. Still, there are eligibility limits. You need to owe less than $50,000 to set up an online installment payment plan and less than $100,000 to set up an online short-term payment plan.
Paying in full requires no setup fee or ongoing penalties and interest. You can pay by check, money order, via debit/credit, through the Electronic Federal Tax Payment System (EFTPS), or through a checking/savings bank account via the IRS’s Direct Pay function.
Short-term payment plans require you to complete payment within 180 days via multiple lump-sum deposits. Again, there are no setup fees, online or otherwise. You will continue to accrue penalties and interest until the debt is fully paid.
An installment agreement may be the best hope for a financially feasible payment plan for taxpayers whose debt might have taken them by surprise.
Installment agreements cost money to set up, depending on whether you’re opting for a direct debit plan (wherein the IRS makes automatic monthly withdrawals from your account) or a manual payment plan.
Direct debit plans only cost $31 to set up online and $107 to set up via phone or in-person (for debts over $50,000). Paying off on your own volition drives up the price for online setup to $130 and $225 otherwise.
Low-income taxpayers may have their fees waived if they opt for direct debit or need only pay $43 for a manual payment plan (this fee may be reimbursed later). To qualify as a low-income taxpayer, your adjusted gross income must be at or below 250 percent of the federal poverty level. helps taxpayers determine eligibility as low-income applicants.
Setting up an installment agreement online is the easiest way to get started on your debt payment. However, if you are ineligible for an online payment plan, you must print and complete Form 9465, Installment Agreement Request. You might also need to fill out Form 433-F, Collection Information Statement, to provide additional financial details relevant to your payment plan.
