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How to Reduce IRS Tax Debt Owed with a Payment Plan
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How to Reduce IRS Tax Debt Owed with a Payment Plan
Owing money to the IRS can be super stressful. I get it–I’ve been there myself. Trying to figure out payment plans and how to get your tax debt reduced is confusing. But don’t worry–I’m here to walk you through it and help make it simple.
The IRS knows most folks can’t pay off their full tax debt all at once. That’s why they offer payment plans to help taxpayers pay over time. These plans make it possible to pay down your tax debt in affordable monthly installments.
Types of IRS Payment Plans
There are a few different payment plan options, depending on your situation:
- Short-term payment plan – For balances under $100,000, pay within 180 days
- Long-term payment plan – For balances over $50,000, pay over several years
- Partial payment plan – Pay what you can afford if you can’t pay in full
- Offer in Compromise – Settle for less than you owe if you qualify
Let’s go over each of these in more detail, so you can figure out the best option.
Short-Term Payment Plans
If your total tax debt is under $100,000, the IRS will let you set up a short-term payment plan to pay it off within 180 days (about 6 months). This is sometimes called a “monthly payment plan.”
The benefit here is you have up to 6 months to pay off your balance. The downside is the payments can be pretty high to pay it off that fast. Make sure you can afford the monthly payments before agreeing to this type of plan.
Long-Term Payment Plans
If your balance is over $50,000, you may qualify for a long-term payment plan (also called an “installment agreement”). This allows you to pay down your tax debt over several years, usually in 72 monthly payments.
Since it’s paid over a longer timeframe, the monthly payments are smaller and more affordable. This is a great option if you have a large tax debt you need more time to pay off.
Partial Payment Plans
If you truly can’t afford to pay even the reduced monthly payments under the long-term plans, you can apply for a partial payment plan instead.
With this option, you pay whatever you can reasonably afford each month. The IRS will review your financial situation and work with you to come up with a payment amount that works for you.
Just keep in mind the lower your payments, the longer it will take to pay off your full debt. But this option helps make your tax debt more manageable if money is tight.
Offer in Compromise
An Offer in Compromise allows you to settle your tax debt for less than you actually owe. You’ll need to prove to the IRS that you couldn’t possibly pay your full debt in a reasonable timeframe.
If approved, you pay a reduced lump sum or make reduced monthly payments for up to 24 months. This can drastically reduce what you end up paying.
Just know that qualification is strict, so this option only works for some taxpayers. Make sure you meet the eligibility criteria before applying.
How to Apply for an IRS Payment Plan
Applying for IRS payment plans is pretty straightforward. Here are the steps:
- Calculate how much you can afford to pay each month
- Decide which payment plan works best for your situation
- Submit your payment plan application to the IRS
- The IRS will review and let you know if you’re approved
- If approved, make your monthly payments as scheduled
You can submit payment plan applications using the IRS Online Payment Agreement tool. This is the easiest way to apply.
You can also call the IRS at 800-829-1040 and speak to a representative to set up your plan over the phone. Or you can fill out IRS Form 9465 and mail it to the IRS to apply.
Other Ways to Resolve IRS Tax Debt
In addition to payment plans, here are some other options to take care of tax debt:
- Currently Not Collectible Status – If you have no ability to pay at all right now, the IRS may put your account into uncollectible status temporarily. Collection activity pauses until your financial situation improves.
- Penalty Abatement – You may qualify to get certain penalties, like failure-to-file or failure-to-pay penalties, removed from your balance due.
- Innocent Spouse Relief – If your tax debt is due to your spouse’s actions, you may qualify to have your liability removed.
- IRS Hardship Programs – If facing extreme hardship, you may qualify for currently not collectible status or other relief under IRS hardship guidance like IRS Fresh Start.
I know dealing with the IRS can feel overwhelming. But take a deep breath–you’ve got this! Their payment plans make it possible to resolve tax debt even if you can’t pay in full right now. Just be sure to stay in communication with the IRS along the way.
Hope this gives you a good overview of your different options. Let me know if you have any other questions!