The Internal Revenue Service (IRS) offers taxpayers the option of establishing installment agreements—payment plans—when they are unable to remit the full amount of taxes owed. Form 9465, “Installment Agreement Request,” is a key document in this process. This article details the purpose of Form 9465, eligibility requirements, available payment options, associated fees, and the application process, based on official IRS documentation.
Understanding Installment Agreements
An installment agreement allows taxpayers to pay their tax liabilities over time, typically on a monthly basis. This option is available to individuals owing income tax on Form 1040 or 1040-SR, those responsible for trust fund recovery penalties, individuals with employment tax liabilities from a no-longer-operating sole proprietorship, and those who previously owed the individual shared responsibility payment under the Affordable Care Act (though this payment is no longer assessed for months beginning after December 31, 2018). Before pursuing a payment plan, taxpayers are advised to consider alternative funding sources, such as bank loans or credit utilization, which may incur lower costs.
Eligibility Criteria and Agreement Types
Taxpayers may qualify for an installment agreement if they owe $50,000 or less (for individuals) or $25,000 or less (for businesses). Crucially, eligibility also requires that all required tax returns have been filed and any previously owed taxes have been paid. Furthermore, taxpayers must demonstrate an inability to pay the full tax amount immediately.
The IRS categorizes installment agreements into several types:
- Short-Term Payment Plan: This plan is designed for taxpayers who can pay the full amount owed within 180 days. No setup fee is associated with this option, but penalties and interest continue to accrue on the outstanding balance.
- Long-Term Payment Plan: This plan is suitable for taxpayers requiring more than 180 days to fulfill their tax obligations. Long-term plans can be established through direct debit (automatic withdrawals) or non-direct debit methods.
- Guaranteed Installment Agreement: Taxpayers owing $10,000 or less may be eligible for a guaranteed installment agreement if they have timely filed all income tax returns and paid any income tax due for the past five tax years, and have not previously entered into an installment agreement for income tax payments.
- Partial Payment Installment Agreement (PPIA): The documentation does not provide details on this type of agreement.
- Low-Income Taxpayer Reduced Installment Agreement: This option provides reduced fees for qualifying low-income taxpayers.
Fees Associated with Installment Agreements
The IRS charges a user fee for establishing installment agreements. As of 2024, the fees vary depending on the payment method:
- Direct Debit (Online): $31
- Direct Debit (Mail/Phone): $107
- Non-Direct Debit (Online): $22
- Non-Direct Debit (Mail/Phone): $178
Low-income taxpayers may qualify for a fee waiver or reduction. If eligible and utilizing direct debit, the fee is waived entirely. If direct debit is not feasible, the fee is reduced to $43, with potential for reimbursement at the conclusion of the installment agreement.
Applying for an Installment Agreement
Taxpayers have several options for applying for an installment agreement:
- Online: The IRS offers an Online Payment Agreement tool for individuals owing $50,000 or less and businesses owing $25,000 or less.
- By Phone: Individuals can call the IRS at 1-800-829-1040 to apply.
- By Mail: Utilizing Form 9465 is the method for applying by mail.
Completing Form 9465
Form 9465 requires detailed information, including the taxpayer’s name, address, and phone number; details of any business that is no longer operating; the total amount due, including any outstanding balances from existing payment agreements; the proposed monthly payment amount; and the preferred day of the month for payment. Taxpayers can also indicate their preference for making payments through payroll deduction by completing line 14 of Form 9465 and including Form 2159 (Payroll Deduction Agreement).
The form also includes sections for providing automatic withdrawal information and indicating eligibility for fee waivers or reimbursements. The IRS instructions emphasize the importance of submitting the form as early as possible to minimize penalties and potential enforcement actions. The appropriate mailing address for Form 9465 varies depending on the taxpayer’s location and the schedules filed with their tax return, and should be determined by consulting the form instructions.
Automatic Payments and Payroll Deduction
Taxpayers can streamline their installment agreement payments through automatic withdrawals (direct debit) or payroll deduction. Direct debit involves authorizing the IRS to automatically withdraw the agreed-upon amount from the taxpayer’s bank account each month. Payroll deduction allows the taxpayer’s employer to withhold the payments directly from their paycheck and remit them to the IRS. To elect payroll deduction, taxpayers must complete Form 2159 and submit it with Form 9465.
Modifying or Terminating an Agreement
Taxpayers can request modifications or termination of an existing installment agreement. The documentation does not detail the process for doing so.
Non-Compliance and IRS Collection Processes
The documentation does not detail what happens if a taxpayer fails to comply with the terms of the installment agreement. However, it does mention the IRS collection process and taxpayer rights.
Taxpayer Advocate Service (TAS)
The IRS provides a Taxpayer Advocate Service (TAS) to assist taxpayers who are experiencing difficulties with the IRS. The documentation does not provide details on how to contact TAS.
Conclusion
Form 9465 provides a pathway for taxpayers facing financial hardship to manage their tax debt through installment agreements. Understanding the eligibility requirements, available payment options, associated fees, and application process is crucial for navigating this system effectively. Utilizing online tools, phone assistance, or submitting Form 9465 by mail allows taxpayers to establish a payment plan that aligns with their financial circumstances.