IInstallment agreements are arrangements with the IRS to let a taxpayer pay his or her full tax liability over a period of time. A monthly payment is negotiated between the IRS and the taxpayer for a specific length of time.

The IRS offers four types of installment agreements: Regular, Streamlined, Partial Payment, and Guaranteed Installment Agreements:

regular installment agreement

When you owe the IRS more than $50,000, or you require a repayment term longer than five years, or if you don't meet any of the criteria for a streamlined or guaranteed installment plan, you will need to negotiate your own installment agreement with the IRS.

Such an agreement will be negotiated directly with an IRS agent, and will then be routed to a manager at the IRS for review and approval. The IRS will likely file a federal tax lien (if they haven't already). This type of agreement is often referred to as a "non-streamlined" agreement as it falls outside the IRS's guidelines for automatic approval of the agreement. The IRS will ask that you provide them with a financial statement so they can analyze what's the most you can afford to pay each month towards your balance. The IRS will likely ask that you attempt to sell off any assets or take out a bank loan, or get a home equity loan so you can pay off the IRS without needing to get an installment agreement.

streamlined installment agreement

This may be an option if your tax liability is small enough.

The IRS recently relaxed its rules for payment of smaller tax liabilities: those greater than $25,000 but less than $50,000. The Streamlined Installment Agreement is part of the IRS's Fresh Start Program. Prior to Fresh Start, the IRS would approve streamlined installment agreements only if the balance was $25,000 or less and the person agreed to pay in full within 60 months. The rules now allow taxpayers up to 72 months to pay their tax obligations. In certain circumstances, you can have longer to pay or your agreement can be approved for an amount that is less than the amount of tax you owe (see below under Partial Payment Installment Agreements).

Who is eligible for this new program? The new rules apply only to individuals who:
  • owe income tax on Form 1040;
  • may be responsible for a Trust Fund Recovery Penalty;
  • were self-employed and owe self-employment or unemployment taxes and is no longer operating the business;
  • are personally responsible for a partnership liability and the partnership is no longer operating; or
  • are an Owner that is personally responsible for taxes in the name of a limited liability company (LLC) and the LLC is no longer operating

The best part of entering into a guaranteed installment agreement is that the IRS will not file a federal tax lien against your property. The IRS will also not require you to complete a financial statement so as to analyze your current financial circumstances and ability to pay.

partial payment installment agreement

In a Partial Payment Installment Agreement you pay less than what you owe, just like an Offer in Compromise, but over time.

A Partial Payment Installment Agreement may be the best fit for you if the minimum payments for either the Guaranteed or Streamlined Installment Agreements do not fit into your budget. The monthly payment under this type of payment plan is based on what you can actually afford after taking into consideration your essential living expenses. Unlike Guaranteed or Streamlined agreements, a Partial Payment plan can be set up to cover a longer repayment term, and the IRS may file a federal tax lien to protect its interests in collecting the debts.

The IRS will require you to fill out a financial statement to report your average income and living expenses for the past three months, plus provide paystubs and bank statements as supporting documentation to evidence your ability, or inability, to pay. Unlike other types of installment agreements, the IRS routinely re-evaluates the terms of partial installment agreements every two years to see if you might be able to pay more.

Guaranteed installment agreement

Your request for an installment agreement cannot be turned down if the tax you owe is not more than $10,000 and all three of the following apply:

  • during the past 5 tax years, you (and your spouse if filing a joint return) have timely filed all income tax returns and paid any income tax due, and have not entered into an installment agreement for payment of income tax;
  • the IRS determines that you cannot pay the tax owed in full when it is due and you give the IRS any information needed to make that determination; and
  • you agree to pay the full amount you owe within 3 years and to comply with the tax laws while the agreement is in effect

As with the Streamlined Installment Agreement, the best part of entering into a Guaranteed Installment Agreement is that the IRS will not file a federal tax lien against your property. The IRS will also not require you to complete a financial statement so as to analyze your current financial circumstances and ability to pay.

some possible concerns when it comes to installment agreements

If you comply with all terms and conditions or your installment agreement, the IRS takes no further action against you. However, a Notice of Federal Tax Lien may be filed to protect the government’s interests until you pay in full.

You will be charged interest and a late payment penalty on any tax not paid by its due date, even if your request to pay in installments is granted. Interest and any applicable penalties will be charged until the balance is paid in full. Current interest rates are 3% per annum and you also will be charged a late payment penalty of ¼% per month.

By approving your request, IRS agrees to let you pay the tax you owe in monthly installments instead of immediately paying the amount in full. In return, you agree to make your monthly payments on time. You also agree to meet all your future tax liabilities. This means that you must have enough withholding or estimated tax payments so that your tax liability for future years is paid in full when you timely file your return. Your request for an installment agreement will be denied if all required tax returns have not been filed. Any refund due you in a future year will be applied against the amount you owe. If your refund is applied to your balance, you are still required to make your regular monthly installment payment.