You’ve finished your tax return, and you owe money to the IRS for your federal taxes. If the amount you owe is more than you can pay all at once, don’t worry — you can set up a payment plan with the IRS to pay it off. Here’s what you need to know about making federal tax payments to the IRS.

When you finish your tax return, you’ll know whether you owe money or are owed a refund. Depending on how much you owe, you may need to set up a payment plan to pay back the IRS for taxes on your income. The IRS will charge interest on the amount you still haven’t repaid after the April federal tax deadline. However, it’s only .25 percent if you set up a repayment schedule.

 

Tax Debt Amounts and How They’re Processed

The process of setting up a payment plan for making federal tax payments varies according to how much you owe.

  • In general, a request for an installment plan for amounts of $10,000 or less is approved automatically and must be repaid within 72 months.
  • For amounts between $10,000 and $25,000, you will likely qualify for a streamlined installment plan, which you will have 72 months to pay off. In general, streamlined plans don’t require that you provide additional financial information.
  • For amounts between $25,000 and $50,000, you will need to fill out Form 9465-FS, which provides the IRS with information about your income and expenses. Once again, you are required to pay off the balance within 72 months.
  • For tax debts above $50,000, you are required to fill out Form 433-A, which gives the IRS more detailed information about your income, investments, assets, and bank accounts. You may be required to sell off some of your assets to help pay down your debt. In this case, minimum payment amounts are dependent on the agreement between you and the IRS.

 

Minimum Payment

When you set up a payment plan with the IRS for making federal tax payments, the minimum payment is the total you owe divided by 72 — basically, you’re required to pay back your tax debt within 6 years. The IRS requires you pay at least this minimum amount per month but also encourages you to pay as much as you can afford above that number. Additionally, you can opt to pay a portion of your tax debt up front and set up the remainder on a payment plan. Any payments you make toward your taxes before the April 15 (or in 2017, April 18) deadline are not subject to interest.

 

Fees

To set up an installment plan, you must pay an additional setup fee. These fees have increased dramatically as of January 1, 2017.

 

USER FEE CATEGORY

CURRENT FEE

FEE AS OF
JAN. 1, 2017

Regular installment agreement

$120

$225

Regular installment agreement with direct debit (DDIA)

$52

$107

Low income installment agreement (regular or DDIA)

$43

$43

Online payment agreement — regular installment agreement

$120

$149

Online payment agreement — Direct debit installment agreement (DDIA)

$52

$31

Restructured/reinstated installment agreement

$50

$89

Restructured/reinstated low income installment agreement (new fee)

--

$43

Source: IRS Website

 

There is one exception to the installment plan fees. If you set up an installment plan that allows you to pay back the entire balance within 120 days, there is no charge.

 

Interest

The IRS charges interest on tax balances until they are paid in full. As long as you have submitted your tax return on time, the interest rate for installment plans is .25 percent.

 

How to Pay Your Tax Debt

There are several ways to make your monthly payments for tax debt. In general, you will be required to set up an automatic withdrawal from either your bank account or an automatic withholding from your paycheck. However, you can also make additional payments by mail or online.

 

Direct withdrawals from your bank account: use Form 9456 to request an installment agreement and to provide the IRS with your bank account information.

 

Withholding from your paycheck: talk to the accounting department at the company where you work to see if this is a possibility.

 

Mailing in your payment: to make a payment by mail, make your check payable to the U.S. Treasury. Include your name, address, social security number, phone number, the tax year, and a completed Form 1040 V. You’ll find the address listed on page two of Form 1040 V; it varies by state.

 

Making payments online: if you’re making a federal tax payment online using either a debit or credit card, click here.

 

 

For more information on all things taxes, contact Liberty Tax directly at 1-877-at-Liberty, or visit a conveniently located Liberty Tax office near you. For real-time updates, follow Liberty Tax on Facebook and Twitter.