In some cases, the Internal Revenue Service will allow those who are behind on taxes to use an installment plan. This is a type of payment plan where a person pays monthly installments and gradually addresses their back taxes over time. It can make tax debt more manageable, even for someone who cannot pay the full amount at once.
That said, installment plans can come with certain costs and fees. While this option may still make the tax debt far more affordable, it is important to understand what costs may be required upfront.
Short-term versus long-term
One key detail is whether the plan is a short-term payment plan, which lasts 180 days or less, or a long-term plan that involves monthly payments. For a short-term plan, the individual must still pay any penalties and interest, but there are no setup fees or online application fees. The plan can be established at no cost.
For a long-term plan, the fees depend on how the payments will be made. If payments are made through direct debit from a bank account, referred to as a Direct Debit Installment Agreement (DDIA), there is an application fee of $22 if it is set up online. For those who apply in person, by mail or over the phone, the setup fee is $107.
There is also another option for long-term plans in which payments are made from a bank account through an IRS account or by mailing in a check each month. Payments can also be made with a credit card, which involves additional fees. For this type of plan, the online application fee is $69, while the fee for applying in person, by mail or over the phone is $178.
Your options
This demonstrates that there are several options available for handling tax debt, and the ideal solution will be different in every situation. Be sure you understand what legal steps to take before moving forward.