When taxpayers owe money to the IRS, they may struggle to pay the full amount that is due by the deadline at issue. Fortunately, the IRS offers short-term and long-term payment extensions to help individuals and businesses manage their tax debt.
Choosing the right option for an individual concern is a process that should be influenced by how much is owed, the taxpayer’s financial situation and how quickly they can pay off the balance. Understanding the differences between short-term and long-term payment arrangements can help taxpayers avoid penalties, interest and potential enforcement actions like wage garnishments or liens.
Short-term and longer-term payment extensions
A short-term or long-term extension allows taxpayers extra time to pay their tax debt in full, typically within 180 days. This option is ideal for individuals who need a little more time but can pay off the full amount without entering a formal installment agreement.
Key Features of a short-term and longer-term extension approach:
- Available to individuals who owe less than $100,000 in combined tax, penalties and interest
- No setup fee, but interest and late payment penalties continue to accrue
- No formal agreement required; taxpayers simply make payments until the balance is paid in full
- Can be requested online through the IRS Payment Plan tool or by calling the IRS
An extension is a good choice for taxpayers who have temporary financial difficulties but expect to have the funds to settle their tax debt within a few months.
Payment plans
A truly “long-term extension” is considered to be an installment agreement, which allows taxpayers to make monthly payments over an extended period, typically up to 72 months (six years). This option is best for those who cannot pay their full tax debt within 180 days. This approach is
- Available for individuals who owe $50,000 or less and businesses that owe $25,000 or less
- Requires an application and IRS approval
- A setup fee applies (though it may be reduced for low-income taxpayers)
- Interest and penalties continue to accrue until the balance is paid in full
- Payments are made electronically, by check, or through payroll deduction
A long-term installment agreement provides more flexibility but requires consistent payments to avoid defaulting.
There is no “one-size-fits-all” approach that is best for every taxpayer. Seeking legal guidance helps taxpayers determine the best approach to resolving their unique tax debts while minimizing financial hardship.