For many U.S. taxpayers, the end of the tax year can bring both relief and anxiety. While some receive refunds, others face the challenge of owing more in taxes than they can pay upfront. In such cases, the Internal Revenue Service (IRS) offers a structured solution: the Installment Agreement. IRS Form 9465, the Installment Agreement Request, allows taxpayers to settle their tax debt in manageable monthly payments. This guide provides a detailed overview of Form 9465, including eligibility requirements, the types of agreements available, and the necessary steps for submission.
Understanding IRS Form 9465
IRS Form 9465 is a formal request to the IRS to establish an installment agreement for unpaid tax liabilities. This form is designed for individuals or entities that cannot pay their full tax obligation immediately but are able to make regular, monthly payments. The IRS offers various types of installment agreements, each with specific conditions and requirements. The form itself is part of a broader set of tools provided by the IRS to help taxpayers manage their financial obligations responsibly.
According to the IRS instructions for Form 9465 (Revised: 07/2024), the form should be used when a taxpayer owes taxes but cannot pay the full amount upfront. It is important to note that before applying for an installment agreement, taxpayers are encouraged to explore other alternatives, such as obtaining a bank loan or using available credit, which may be less costly in the long run.
The form is most commonly used by individuals who owe $50,000 or less in taxes (including penalties and interest). However, for amounts under $10,000, the IRS may automatically approve the application without requiring additional documentation. For higher amounts, the approval process may involve a review of the taxpayer's financial situation.
Who Should Use IRS Form 9465
IRS Form 9465 is intended for a specific group of taxpayers. According to the IRS instructions, the form is appropriate for individuals or entities that:
- Owe income tax on Form 1040 or 1040-SR;
- Are or may be responsible for a Trust Fund Recovery Penalty;
- Owe employment taxes (such as those reported on Forms 941, 943, or 940) related to a sole proprietorship that is no longer in operation;
- Owe an individual shared responsibility payment under the Affordable Care Act (note that this payment is not assessed for months beginning after December 31, 2018).
The form is not suitable for every taxpayer. For example, individuals who owe more than $50,000 in taxes (including penalties and interest) may not qualify for an installment agreement and should explore other options, such as an Offer in Compromise or Bankruptcy. Additionally, taxpayers who have not filed all required tax returns may find their request denied, as the IRS requires all necessary returns to be submitted before an installment agreement can be approved.
Types of Installment Agreements
The IRS offers several types of installment agreements, each tailored to different financial situations and tax liabilities. These agreements include:
Guaranteed Installment Agreement
A Guaranteed Installment Agreement is available for taxpayers who owe $10,000 or less in taxes (excluding penalties and interest). This type of agreement is automatically approved if the taxpayer meets the following criteria:
- Has filed all required tax returns;
- Has no history of unpaid taxes or tax liens;
- Has no previous installment agreements or other payment plans with the IRS.
This agreement is ideal for individuals with a small tax debt who are able to make regular, monthly payments. The IRS guarantees approval without requiring a financial review or additional documentation.
Streamlined Installment Agreement
A Streamlined Installment Agreement is available for taxpayers who owe up to $50,000 in taxes (including penalties and interest). This type of agreement requires the taxpayer to provide basic financial information, such as income and expenses. The IRS uses this information to determine the appropriate monthly payment amount.
This agreement is suitable for taxpayers who are able to make consistent monthly payments and have no significant financial hardships. The approval process is streamlined, and the IRS does not conduct a detailed financial review.
Partial Payment Installment Agreement (PPIA)
A Partial Payment Installment Agreement (PPIA) is available for taxpayers who are unable to pay the full amount of their tax debt but can afford to make partial payments. This type of agreement is typically considered when the taxpayer’s monthly payment is less than the amount of tax owed by the Collection Statute Expiration Date (CSED).
The PPIA is a more limited option and may not be available for all taxpayers. The IRS will evaluate the taxpayer’s financial situation and determine whether the agreement is appropriate.
More on Types of Installment Agreements and Payment Options
The IRS also offers other payment options for taxpayers, such as the Direct Debit Installment Agreement (DDIA). This type of agreement allows taxpayers to make automatic monthly payments from a bank account. The DDIA is particularly beneficial for taxpayers who want to ensure timely payments and avoid late fees.
In addition to the installment agreements, the IRS also offers a variety of payment plans and financial assistance programs. Taxpayers should review all available options and choose the one that best fits their financial situation.
Applying for an Installment Agreement
Applying for an installment agreement involves several steps. The first step is to determine whether the taxpayer is eligible for an agreement. If the taxpayer owes $50,000 or less in taxes (including penalties and interest), they may be eligible for an online payment agreement application. This option allows taxpayers to apply for an installment agreement without submitting IRS Form 9465.
For taxpayers who are not eligible for the online application, the next step is to complete IRS Form 9465. This form requires the taxpayer to provide detailed information about their financial situation, including income, expenses, and assets. The IRS will use this information to determine the appropriate monthly payment amount.
After completing the form, the taxpayer must submit it to the IRS along with their tax return. If the taxpayer has already filed their return, they can submit the form separately. The IRS will review the form and notify the taxpayer of the approval status.
If the taxpayer is approved for an installment agreement, they must agree to make timely monthly payments. The IRS will also require the taxpayer to meet all future tax obligations, including sufficient withholding or estimated tax payments to ensure that future tax liabilities are paid in full when the return is filed.
Installment Agreement User Fees
Taxpayers should be aware that the IRS charges a user fee for installment agreements. This fee is intended to cover the administrative costs associated with processing the agreement. The fee varies depending on the type of agreement and the payment method used.
For example, the user fee for a Guaranteed Installment Agreement is $31. For a Streamlined Installment Agreement, the fee is $137. However, the IRS offers a reduced user fee for low-income taxpayers who agree to make electronic payments through a Direct Debit Installment Agreement (DDIA). The reduced fee is $0 for these taxpayers.
Taxpayers who are unable to afford the user fee may be eligible for a waiver or reimbursement. The IRS provides specific criteria for determining eligibility for a waiver or reimbursement. Taxpayers should review these criteria carefully and contact the IRS if they believe they qualify for a fee waiver or reimbursement.
What Happens If the Taxpayer Fails to Comply?
Failure to comply with the terms of an installment agreement can result in serious consequences. The IRS may impose additional penalties and interest on the unpaid balance. In some cases, the IRS may also take collection actions, such as levying the taxpayer’s bank account or wages.
If the taxpayer fails to make a payment on time, the IRS may notify them and request that they bring the agreement up to date. If the taxpayer is unable to make the payment, they may be able to request a modification to the agreement. The IRS will evaluate the request and determine whether the modification is appropriate.
Taxpayers who are experiencing financial hardship should contact the IRS as soon as possible. The IRS offers a variety of assistance programs, including the Taxpayer Advocate Service (TAS), which can help taxpayers resolve issues related to their tax debt.
Conclusion
IRS Form 9465 is a valuable tool for taxpayers who are unable to pay their tax debt in full but are able to make regular, monthly payments. The form allows taxpayers to request an installment agreement with the IRS, which can help them manage their financial obligations responsibly. By understanding the types of agreements available and the necessary steps for submission, taxpayers can make informed decisions about their tax debt and financial future.
Before applying for an installment agreement, taxpayers should carefully review the IRS instructions and consider all available options. The IRS offers a variety of payment plans and financial assistance programs that may be more suitable for certain taxpayers. By choosing the right option, taxpayers can avoid financial hardship and ensure that their tax obligations are met in a timely manner.