If you are unable to pay the tax owed by the original tax return filing due date, you can enter into a payment plan agreement with the Internal Revenue Service (IRS).
A payment plan is an installment agreement with the IRS to pay the taxes you owe within an extended time frame.
Basics of IRS payment plans for Businesses
There are two types of payment plans for businesses – the Streamlined Installment Agreement and the Routine/Regular Installment Agreement.
1. Streamlined Installment Agreement for Businesses
The Company can apply online for a streamlined installment agreement. To apply online the Company must have filed all required returns and owe $25,000 or less in combined tax, penalties, and interest. The Company must pay the debt in full within 72 months (6 years), and within the time limit for the IRS to collect the tax. Financial statements do not need to be submitted as part of the streamlined installment agreement.
Note that the IRS must have processed the tax returns first, before applying for the payment plan online.
To apply, you must log in with your IRS username or ID.me credentials. You will also need the Company employer identification number (EIN), date the business was established, your caller ID from any payment due notice, business address from the most recently filed tax return, balance due amount, tax form filed or examined, and tax period filed or examined.
2. Routine/Regular Installment Agreements
If the Company does not meet the criteria above for a streamlined installment agreement, then the Company will not be able to apply online.
Instead, the Company must apply by phone (800-829-4933), and submit Form 433-B, Collection Information Statement for Businesses.
Form 433-B provides the IRS with financial statement information of the Company to aid in setting up the installment agreement. The application is quite lengthy and intensive so consulting with a CPA and/or tax attorney is highly recommended.
IRS Payment Plans for Individuals
Similarly for individuals, there are two types of payment plans for businesses – the Streamlined Installment Agreement and the Routine/Regular Installment Agreement.
1. Streamlined Installment Agreement for Individuals
Individual taxpayers can apply online for a streamlined installment agreement.
To apply online for a long-term payment plan the individual must owe $50,000 or less in combined tax, penalties, interest and have filed all required tax returns.
To apply online for a short-term payment plan (paying in 180 days or less) the individual must owe less than $100,000 in combined tax, penalties, interest and have filed all required tax returns.
2. Routine/Regular Installment Agreements
If the individual does not meet the criteria above for a streamlined installment agreement, then the individual taxpayer will not be able to apply online.
Individual taxpayers must complete Form 9465, Installment Agreement Request and mail the form to the address listed in the Form 9465 instructions. The IRS will let the individual know if the request is approved or denied within 30 days after receiving the request. If the request is approved, the IRS will send a notice detailing the terms of your agreement and request a user fee. Once the request is approved, the IRS will send a notice monthly to the individual taxpayer detailing the remaining amount owed, due date, and amount of your next payment.
In some cases, the IRS may request additional information on Form 433-F, Collection Information Statement. This Form provides the IRS with financial statement information of the individual to aid in setting up the installment agreement.
Generally, the IRS likes to see businesses or individual taxpayers current with their taxes before they will approve payment plans. This means that estimated tax payments are being made for the current tax year so that the payment plan covers only back due taxes.
States have their own payment plan agreements so we recommend that you check the specifics with each state should you need to enter an agreement to pay past due state taxes.
Aura Advisors is a boutique tax consulting and compliance firm working with start-ups, emerging growth companies, and affluent individuals. Making it safer for good people and good companies to continue to do good things.