The minimum payment the IRS will accept for a tax payment plan depends on the total amount of taxes you owe. The Internal Revenue Service (IRS) offers various payment options, including installment agreements, to help taxpayers manage their tax debt.
Understanding IRS Payment Plan Minimums
The IRS has different guidelines for minimum payments based on the balance of taxes owed. These guidelines are designed to ensure the debt is repaid within a reasonable timeframe, typically up to six years.
Here's a breakdown of the minimum payment requirements:
| Tax Balance Owed | Minimum Payment | Maximum Term |
|---|---|---|
| Less than $10,000 | No specified minimum payment | Three years |
| $10,000 to $25,000 | Balance of taxes owed divided by 72 | Six years (72 months) |
It's important to note that interest and penalties continue to accrue on your unpaid balance, even when you are on a payment plan. Therefore, it is always advisable to pay as much as you can afford to minimize the total cost of your debt.
Specifics of Payment Plans
For Tax Balances Less than $10,000
If your total tax balance, including penalties and interest, is less than $10,000, the IRS does not impose a specific minimum monthly payment. However, the maximum repayment term for this type of installment agreement is generally three years.
- Flexibility: You have the flexibility to propose a payment amount that fits your budget.
- Interest Accumulation: Despite the lack of a minimum, interest and penalties will still be charged. Paying more than the bare minimum (or if you were to set it very low) will help you pay off the debt faster and reduce the total interest paid over time.
- Recommendation: To avoid accumulating excessive interest, it is recommended to set your monthly payment as high as you can reasonably afford without jeopardizing your other essential living expenses.
For Tax Balances Between $10,000 and $25,000
For tax balances ranging from $10,000 up to $25,000, the IRS stipulates a specific minimum payment. The maximum repayment term for these agreements is typically six years, which equates to 72 months.
- Calculation: Your minimum monthly payment is calculated by dividing your total balance of taxes owed by 72.
- Example:
- If you owe $15,000, your minimum monthly payment would be $15,000 ÷ 72 = $208.33.
- If you owe $20,000, your minimum monthly payment would be $20,000 ÷ 72 = $277.78.
- Objective: This structured minimum ensures that the debt will be paid off within the six-year period.
How to Set Up an IRS Payment Plan
Establishing an IRS payment plan, known as an installment agreement, can be done through several methods:
- Online Payment Agreement (OPA): This is often the quickest and easiest way for many taxpayers. You can apply online through the IRS website.
- By Mail: You can complete and mail Form 9465, Installment Agreement Request, to the IRS.
- By Phone: You may be able to set up an agreement by calling the IRS directly.
- Through a Tax Professional: A tax professional can assist you in negotiating and setting up a payment plan on your behalf.
Before applying for a payment plan, ensure you have filed all required tax returns, even if you cannot pay the full amount due. The IRS typically requires all outstanding tax returns to be filed before approving an installment agreement.
