To be eligible for an installment agreement, all returns that are due must first be filed.

Installment agreements generally require equal monthly payments. The amount of an installment payment will be based on the amount owed and on the taxpayer’s ability to pay that amount within the time legally available for the IRS to collect. By law, the IRS has the authority to collect outstanding federal taxes for ten years from the date of assessment. For taxpayers that enter into an installment agreement, the IRS may require a signed waiver to extend the time IRS can collect.

Taxpayers who already have an installment agreement from a previous amount owed may still find help. All of the amounts owed could be included in one installment agreement. Additionally, a Collection Information Statement may have to be completed to further illustrate their financial situation.

As a condition of an installment agreement, any refund due in a future year will be applied against the amount owed. Therefore, taxpayers may not get all of their refund if they owe certain past-due amounts, such as federal tax, state tax, a student loan, or child support. The IRS will automatically apply the refund to the taxes owed. If the refund does not take care of the tax debt; then the installment agreement continues until all of the terms are met.

Interest does not Stop with an Installment Agreement

An installment agreement is more costly than paying all the taxes owed now. Penalties and interest continue to be charged on the unpaid portion of the debt throughout the duration of an installment agreement.

NOTE: The interest rate on a loan or on a credit card may be lower than the combination of penalties and interest imposed by the Internal Revenue Code. It is best to pay as much as possible before entering into an agreement.

How Best to Make Timely Installment Payments

The IRS strongly recommends one of the following options for payment under an installment agreement:

Direct Debit - electronic transfers from a checking account, or
Payroll Deduction - deductions that an employer takes from wages or salary. Call toll free 1-800-829-1040 to set this option up.
These forms of payment help to reduce the burden of mailing the payments, save postage, help ensure timely payments, and decrease the likelihood that the agreement will default. If the agreement defaults, enforced collection action could be taken.

Installment agreement payments can also be made by electronic funds transfer (www.eftps.gov), credit card (www.officialpayments.com or www.pay1040.com), personal or business check, money order, cashier’s check, certified funds or cash (cash payments can only be made in person at a local IRS Office-do not send cash through the mail).