IRS and NY Installment Agreements: How to Pay off Your Tax Debt in Monthly Payments

When you file your tax return, you may get hit with an unexpectedly large tax bill, but what if you can’t afford to pay your balance in full? Fortunately, both the IRS and the New York Department of Taxation and Finance offer monthly payment plans to qualifying taxpayers.

Installment agreements can provide a good solution to pay off your tax debt in manageable payments each month. These payment plans give you a structured way to get on top of your balance and they ensure the IRS or state doesn’t take further collection or legal action.

The Law Offices of Stephen B. Kass are here to help you navigate applying for an installment agreement in NY and with the IRS. We also help with other IRS or NY tax resolutions you may need. Act early when you can’t afford your tax bill, and contact our law office to get started.

Key Takeaways:

• Installment agreements in New York and with the IRS give you the ability to pay off your debt over time instead of all at once.
• Types of plans include short-term, long-term, streamlined, guaranteed, and partial payment plan agreements.
• You may qualify to apply online if you have $50,000 or less in federal tax debt for short-term plans and under $100,000 for long-term plans.
• New York State offers installment agreements online for taxpayers with $20,000 or less in state tax debt.
• Penalties and interest still accrue on your balance until you get everything paid off, even with an installment agreement.
• Contact the Law Offices of Stephen B. Kass to talk to a tax attorney about your situation and to get help applying for an installment agreement.

Types of IRS Installment Agreements

The IRS offers several types of payment plans depending on how much you owe, whether you’re an individual or business, and how long you can make payments. Here’s an overview:

• Short-term payment plans: These are only for individuals, and balances must be paid off within 180 days of the due date. There’s no setup fee, and you can apply online if you owe less than $100,000.
• Guaranteed installment agreements: This term refers to payment plans that are paid off within three years, but only taxpayers with less than $10,000 in owed taxes can qualify. You cannot have an existing installment agreement in place, and you must be current on your tax returns and other payments. As the name suggests, acceptance is guaranteed if you meet the requirements.
• Online payment agreements (OPAs): These are installment agreements that you apply for and manage online through the IRS system. To qualify for an OPA, you must owe $50,000 or less and be able to pay off the balance within 72 months.
• Streamlined installment agreements: These are available if you have tax debt under $50,000 and can last for up to 72 months. You can get quick approval and won’t have to provide information about your financial situation. You can apply online, as noted above, through the mail, or over the phone.
• Non-streamlined installment agreements: This term usually just refers to long-term agreements that require financial details. You’ll usually have to disclose financial information to the IRS using a collection information statement like Form 433-F or 433-A. You can get longer to pay and potentially up to the Collection Expiration Date if warranted by your financial situation.
• Partial payment installment agreement (PPIA): These agreements are for taxpayers who can’t afford to pay off their balance, even through a standard payment plan. PPIAs allow you to pay lower payments during the installment term, and you can usually settle your debt for less when all is said and done. In short, you make payments until the Collection Expiration Date, and on that date, you don’t have to pay anymore. However, the IRS can require full payment if your finances improve during that time.
• Direct debit agreements: These installment agreements are paid through automatic withdrawal from your bank account each month. Direct debit helps you ensure you don’t miss a payment and default on your plan. You’ll have to pay just $22 to set up these plans online and $107 if by phone or through the mail. Any of the above plans can be paid with direct debits.

These are the basics of installment agreement types. When you’re not sure of the best option or need to consult with an expert, contact a tax attorney at the Law Offices of Stephen B. Kass for guidance.

NY State Installment Agreements

New York payment plans for state taxes work a bit differently than IRS plans, which are only for federal taxes. NY plans are referred to as installment payment agreements (IPAs), and you will still make monthly payments to pay off your balance.

If you have $20,000 or less in unpaid taxes, you can apply through your online NY tax account, but you must be able to pay off the balance within three years. Contact the DTF directly if you need more than 36 months to pay off your balance and you owe over $20,000.

You have to have a tax bill to request an IPA with New York. You can schedule your automatic payments to be either on the 5th or 15th of the month moving forward.

When you apply, the state will review your application and consider factors like your tax history, filing history, and current finances.

How to Apply for an Installment Agreement

There are a few ways to submit your request for an installment agreement. Let’s walk through what to do:

Apply Online

If your federal debt isn’t too high — under $100,000 for a short-term plan or $50,000 or less for a long-term plan — you can apply through the IRS’s OPA system. You’ll have to create an account with ID.me, submit photo identification, and provide your banking information if applying for a direct debit agreement.

Most NY taxpayers apply for installment agreements online through the state’s Online Services system. You’ll need to create an account, provide your bank account information for bank withdrawal setup, and select installment payment agreement from the options under Account Summary — Payments, bills, and notices.

Use Form 9465 for IRS Payment Plans

If you don’t meet the IRS online application eligibility requirements, you’ll fill out Form 9465, Installment Agreement Request. This form requires your contact information, the amount you owe as found on your tax return or tax notice, the amount you can pay each month, the day of the month you will make your payments (no later than the 28th), and whether you want to sign up for direct debit with your bank account.

In certain situations, you may also need to fill out the part of Form 9465 that asks about your household information and other finance-related questions. For example, you will need to complete this section if you owe over $25,000 and don’t want to set up direct debits or if you have defaulted on a payment arrangement in the past two years.

In some cases, you may also be required to complete Form 433-A or 433-F, Collection Information Statement, with more details about your financial situation.

Apply Over the Phone

You can apply for both IRS and NY installment agreements over the phone. Keep in mind that both of these agencies, the IRS in particular, have long hold times. Whenever possible, you should probably apply online.

To expedite the process, review NY’s online application or IRS Form 9465. Make sure you have all of these details when you call to request a payment plan.

Tips for Setting Up an Installment Agreement

Before setting up an installment agreement, consider the following tips:

• Review Your Tax Returns and Notices – Carefully review all documentation related to your tax balance — your tax returns, and any notices you’ve received from the IRS about overdue taxes and penalties. Make sure you know exactly what you owe when filling out your online or manual application for the IRS or New York State.
• Budget for both payment plans before applying – Depending on your situation, you may need to make larger payments to NY State so that you can pay off the balance within three years and smaller payments to the IRS since they give you more time. It’s also important to note that if you have to complete a financial disclosure for the IRS, they will consider your NY payments when calculating how much you can afford to pay.
• Consider direct debit – You can decide whether or not you want to pay manually each month or set up direct debit, where payments are automatically withdrawn from your account. If your federal tax debt is over $25,000, you are required to select this option (or file a financial disclosure). If not, there are still benefits of direct debit, including a lower risk of missing a payment and default.

How to Determine Your Monthly Payment

As long as you can pay your balance off by the end of the payment term, you can choose your exact monthly payment. To estimate your payment, divide your total due by the number of months in the payment term and then round up to cover interest and penalties.

For example, if you owe the IRS $72,000 and you have 72 months to pay, you should pay at least $1,000 per month. If you owe New York $10,000 and you have 36 months to pay, your minimum payments should be at least $278 per month.

The more you can pay, the better. The faster you get your balance paid down, the fewer penalties and lower interest you’ll have to deal with. However, you should also be careful not to agree to a payment that you may struggle to pay.

Benefits of IRS and NY Installment Agreements

Installment agreements for both state and federal taxes can be the right tax solution when you can’t pay off your balance in full right away. Beyond that key benefit, consider these advantages when you apply:

An End to Enforcement Action

The IRS and New York will no longer come after you with escalating collection actions, such as garnishing your wages, filing tax liens, or issuing tax levies to seize your bank accounts, investments, or property. While you’ll still accrue penalties and interest until your balance is paid off, you won’t have to deal with getting notices demanding payment.

Compliance

Once you set up a satisfactory installment agreement, you are in compliance with the IRS or the state. You’ll stay in good standing as long as you comply with the installment agreement terms.

Affordable Payments

Most payment plans allow you to pay an affordable monthly amount that fits within your budget. This is much easier to handle than trying to make a lump-sum payment on a large tax balance.

What Happens If I Default on an Installment Agreement?

Defaulting on your agreement means you haven’t complied with the terms. This means you didn’t pay your full payment amount, or you missed the deadline for the monthly payment.

In New York, the state will send you a notice about your missed bill, and if you don’t pay, your agreement could be terminated, or the state may start up its collection actions once again.

If you default on an IRS payment plan, you may receive Notice CP523 or CP623 about the termination of your agreement because of default and potential asset seizure. You have 30 days to make your required payment after getting this notice or the IRS will move forward with termination.

Contact the IRS to ask if your agreement can be reinstated — you may have to pay a reinstatement fee. You may also get Letter 2975 in the mail instead, which basically serves the same purpose as CP523.

Alternatives to Installment Agreements

Installment agreements are not the right option for every taxpayer. If you cannot afford an installment agreement, you may need to look into a settlement through the offer in compromise program or see if you can get your IRS account marked as currently not collectible.

Get Help with an Installment Agreement Today

Any amount of tax debt can feel overwhelming. Take steps now to get back in good standing with New York State or the IRS and apply for a payment plan. Installment agreements ensure you can afford your monthly payments, and you don’t have to pay everything off at once.

Just keep in mind that penalties and interest don’t stop during the agreement period, so the faster you get it paid off, the better.

At the Law Offices of Stephen B. Kass, our team has decades of experience in helping taxpayers negotiate with the IRS and get out from under their tax debt. We can help you apply for installment agreements in New York or with the IRS, whether you’re an individual or a business.

Contact our office today to set up a consultation with a tax attorney.