Installment Agreement FAQs
An IRS Installment Agreement (IA) is an agreement which allows taxpayers to pay their back taxes to the IRS for an extended period of time. The IRS Installment Agreement allows taxpayers to pay back their taxes in monthly increments without facing collection actions.
IRS Installment plans do not have a set minimum monthly payment. Although the IRS encourages taxpayers to pay as much as possible to reduce penalties and interest, taxpayers may decide how much they want to pay monthly.
The IRS offers several payment options for taxpayers who enter into an Installment Agreement. These payment options include:
• Direct Debit Installment Agreement (DDIA), in which the IRS automatically deducts monthly payments from the taxpayer's checking account.
Note: businesses may not pay through this option, Direct Pay is only available to individual taxpayers
• Direct Pay, in which taxpayers make their monthly payments online or via phone through the Electronic Federal Tax Payment System (EFTPS).
• Debit/ credit card or money order; additional fees apply to card payments.
Taxpayers applying for an Installment Agreement must be in compliance with the filing of their tax returns. Other requirements vary depending on the amount owed to the IRS by the taxpayer.
The eligibility requirements for an IRS Payment Plan vary depending on how much is owed to the IRS. Taxpayers who less than $50,000 or less in combined penalties, interest and income tax are eligible for an IRS Payment Plan. Taxpayers who owe over $50,000 may enter into a high debt Installment Agreement with the IRS.
The IRS charges a monthly interest of 0.5-5% for penalties. However, individuals who set up an installment agreement with the IRS will have their failure to pay penalties cut in half. As a result, interest will also decline.
In order to make changes to an existing IRS installment agreement, taxpayers may submit a request for modification or termination. The fee to request a modification is $89 for most taxpayers and $43 for low-income taxpayers.
Taxpayers may choose to pay off their IRS Installment Agreements early if they wish. In order to make early payments on an Installment Agreement, taxpayers should visit the IRS payment portal or manually pay by mail.
Due to COVID, the IRS has initiated a pilot program that allows individual taxpayers with an assessed balance of tax, penalty and interest between $50,000 and $100,000 to enter into a direct debit installment agreement. Now, individual taxpayers who owe up to $100,000 can pay through monthly direct debit payments for up to 84 months (7 years).