How to Modify Your IRS Installment Agreement: A Simple Guide

Summary

This guide outlines how to make changes to your IRS payment plan, such as reducing your monthly payment, changing your payment date or method, or adding a new tax debt to your plan. If you can no longer afford to make payments, you may be able to apply for currently not collectible status or an offer in compromise. If you default on your payment plan, the IRS generally gives you 30 days to get back into good standing. The IRS charges fees for making changes to your installment agreement, and there are common reasons why people need to request changes. If you are struggling to keep up with your existing installment agreement, you may want to reach out to a tax professional for help.

How to Request Changes to an IRS Installment Agreement

Can’t afford the monthly payment on your IRS tax debt? Need to change your due date? Want to add a new balance to your existing payment plan? If you have answered yes to any of these questions, you may be able to request changes to your installment agreement online, but depending on the specifics of the changes, you may need to file additional paperwork.

To point you in the right direction, this guide outlines how to make different types of changes to your IRS payment plan. Then, it outlines situations where you may need to file additional paperwork to make changes.

What If I Need to Reduce the Monthly Payment?

If you cannot afford the monthly payment you agreed to when you set up your payment plan, you can change the amount online as long as the new payment meets the following criteria:

• At least $25 per month.
• Pays off the balance within six years (or by the collection statute expiration date if sooner).
• Paid by direct debit if you owe over $25,000 for an individual or $10,000 for a business.

However, if the new payment you want to make does not meet those conditions, you may still be able to request changes online, but you will be prompted to complete a collection information statement such as the 433-F or the more detailed 433-A for individuals or 433-B for businesses.

If you cannot afford to pay the balance off by the date the debt expires, the IRS may consider allowing you to set up a Partial Payment Installment Agreement (PPIA).

With a PPIA, you make monthly payments based on the details on your collection information statement. The IRS will waive any debt that remains on the expiration date, but if your financial situation improves before that point, the agency may require you to make larger payments, get back on a traditional installment agreement, or even pay in full if applicable.

What If I Can’t Afford to Make Monthly Payments at All?

If you can no longer afford to make monthly payments to the IRS, you may want to apply for currently not collectible status or an offer in compromise. The pros and cons of both options are laid out below or follow the links for more details.

Offer in Compromise

With an OIC, you provide the IRS will details about your finances, and you make an offer to settle the debt. If the IRS believes that the offer accurately reflects the equity in your assets and your disposable income, they will accept it and write off the remaining tax debt.

• Pros – You get to settle your tax debt for less than you owe. The settlement stays in effect as long as you are compliant with tax filing and payment requirements for the next five years.
• Cons – You must make a lump sum settlement or monthly payments for two years. The IRS may keep your tax refund in the year you apply. If you’re not compliant for the next five years, they can rescind the offer.

Currently Not Collectible

To qualify for CNC status, you share financial details with the IRS, that show you are not able to pay anything. Then, the IRS stops all collections on your account until your financial situation improves.

• Pros – You don’t pay anything when you’re in CNC status. If the debt expires while you’re on CNC status, you will not have to pay it.
• Cons – Interest and penalties continue to accrue on your account. If your finances improve, the IRS will require you to resume making payments or pay in full.

Because both of these options have long-term implications, you may want to consult with a tax attorney before applying.

How to Change Your Payment Date

You can change your payment date through the IRS’s online portal. If you don’t have an account yet, you will need your photo ID and a smartphone to set up access. You can also call the IRS to request a new payment date.

The IRS lets you choose any date between the 1st and the 28th for payments. If you are currently on direct debit payments, make sure to reach out at least 14 days before your payment date. Otherwise, the IRS may not be able to cancel the upcoming payment.

How to Change Your Payment Method

You can also change your payment method through the IRS’s online portal. You can modify account details for direct debit payments, but again, to be on the safe side, you should make changes at least 14 days before the due date.

If you owe less than $25,000 ($10,000 for businesses), you can remove direct debit payments from your account, and instead, you can opt to mail payments or make them manually online. If you owe any amount, you can always change from mailed-in payments to direct debit payments. The IRS prefers direct debits whenever possible.

What if you owe over $25,000 and you want to get rid of direct debit payments? Then, you have two options:

01. You can request to have your employer withhold the payments from your check and send them to the IRS. To do so, you will need to file Form 2159 (Payroll Deduction Agreement).

02. You can complete a Collection Information Statement. When making changes to an existing agreement or setting up a new agreement, the IRS requires financial details if you owe over a certain threshold and want to make manual payments.

Unfortunately, you cannot use a credit or debit card to make automatic monthly payments. But if you opt for manual payments, you can sign in monthly and pay with your credit or debit card, but you will be required to pay a fee.

How to Add a New Tax Debt to Your Payment Plan

Generally, as long as your balance stays under $50,000 and you can afford the minimum payments to pay off the debt in full within six years, you can roll a new tax liability into your existing balance. Ideally, you should make the request before the IRS sends out a delinquency notice.

If you work with a professional tax preparer, see if they can submit the request when they file your tax return. Otherwise, go online and request to add the new balance as soon as possible.

When you sign the agreement for your installment plan, you agree that you will not incur new tax debt, and if you do, the IRS can put your payment plan into default. Typically, as long as you reach out proactively, you can avoid going into default and easily add on the new balance.

However, if any of the following apply, the IRS may require you to submit a collection information statement:

• The total balance is over $50,000.
• You owe over $25,000 and don’t want to set up direct debits.
• You filed your tax return late.
• You cannot pay off the balance in full within six years or by the collection expiration date if sooner.

If the above items do not apply but the IRS has rejected your request to change your installment agreement, you should contact a tax attorney. They can help you appeal and explore other options as needed.

What if You Default on Your IRS Installment Agreement?

If you default on your payment plan, the IRS generally gives you 30 days to get back into good standing. For instance, if you miss a monthly payment, you will typically receive a notice in the mail, but as long as you pay within 30 days, you will be able to continue making payments.

You can address potential defaults through the IRS’s online portal if you act in a timely fashion. If your account has already gone into default, you may need to make an $89 reinstatement fee. Depending on how long it’s been, you may lose the chance to reinstate online.

If you sign in online and cannot make changes or if you call the IRS and they say you’re already in default, you may want to reach out to a tax attorney.

Fees for Making Changes to Payment Plans

The IRS charges the following fees to make changes to your installment agreement:

• $10 online
• $89 over the phone or through the mail

If you qualify as low-income, the fee is still $10 for online requests and modifications, but it’s $43 for requests made over the phone or through the mail. If you meet certain qualifications, the IRS will reimburse you for these amounts at the end of your payment plan.

How to Change a Short-Term to a Long-Term Agreement

Did you tell the IRS you would pay within six months, but now, you need longer? Then, to get more time, you will need to apply for a traditional installment agreement.

The IRS lets you set up short-term payment plans online on balances up to $100,000. If you want to switch to a long-term plan, you can only do so online if you owe $50,000 or less. If you owe more than that amount, fill out Form 9465 and then call the IRS with the details. You can mail in the form, but it’s faster to call.

If you owe $50,000 or less, you should be able to cancel your short-term plan online and set up a long-term plan. You will need to pay a set-up fee. It’s $22 if you agree to make your payments through direct debit, but it’s $69 ($43 for low-income) if you want to pay manually every month. Note that if you owe over $25,000 and don’t want to make direct debits, you will need to fill out a collection information statement.

Common Reasons to Change Your IRS Installment Agreements

Here are some of the common reasons people need to request changes to their IRS installment agreements:

• Changes to income that make current payments unaffordable.
• Increases in monthly bills that make current payments unaffordable.
• Budget changes that require you to pick a new payment date.
• Bank account closures or new accounts that you want to use on your payments.
• Desire to switch from direct debit payments to manual payments – for example, maybe you started working as a freelancer and no longer get paid on a consistent date.
• New tax balance that you want to add to your existing payment plan.
• Other financial changes that make your existing payment plan hard to maintain.

If you aren’t sure what to do, reach out to a tax professional to talk about your options. A significant number of people who set up IRS installment agreements would have qualified for partial payment agreements, CNC status, or offers in compromise. Although those programs have strict qualification requirements, they can be a superior option to a payment plan in many situations.

Get Help With IRS Installment Agreements

Are you struggling to keep up with your existing installment agreement? Do you need to add in a new tax liability? Want to discuss other options? Need help with tax planning so that you avoid incurring a balance next year? Then, contact us today.

At the Timothy S. Hart Law Group, we work with clients every day who are struggling with tax debt. We can help you deal with the IRS and ensure that you’re making the best decisions for your unique situation.