Online Payment Agreement
As of January 1, 2014, the application fees for an installment agreement are: $120 for a standard agreement, $52 for a direct debit agreement and $43 if the applicant meets low income guidelines.
Business taxpayers who owe $25,000 or less and can full pay the amount within 24 months can now use OPA to establish an installment agreement.
TAMARA WARD: Hi, I'm Tamara.
Welcome to our program about the IRS Online Payment Agreement application.
With me is Scott Reisher, Director of Collection Policy with the IRS.
Scott, thanks for joining me.
SCOTT REISHER: It's a pleasure to be here.
TAMARA WARD: Our objectives today are to give you an understanding of what an IRS Payment Agreement is, when you can apply for one online, and how to apply.
So, Scott, let's start off by giving our audience the definition of what the IRS calls an installment agreement, also known as a payment plan, or payment agreement.
SCOTT REISHER: Sure.
If you have some overdue taxes and can't pay them immediately, you can apply to the IRS for a payment agreement.
We offer short-term extensions of time to pay up to 120 days, monthly payment plans, and other types of agreements.
Today we're focusing only on short-term extensions and basic monthly payment plans because those are the agreements you can apply for online.
TAMARA WARD: Okay, are there any limitations as to who can apply for an Online Payment Agreement?
SCOTT REISHER: Yes.
Taxpayers do have to meet certain conditions before they can apply online.
First of all, only individual taxpayers, those that owe income taxes from Form 1040, can apply for a payment plan online.
All of your tax returns must be filed.
So if you haven't filed in a few years, you must do that first.
Your total balance due, including any assessed penalties and interest, must be $50,000 or less.
If you owe between $25,000 and $50,000, you have to sign up for a direct-debit payment agreement.
Direct debit is where your monthly payments are automatically deducted from your bank account.
And finally, you must be able to pay off your taxes in full in 72 months -- 6 years -- or less.
TAMARA WARD: What if a taxpayer owes more than $50,000 in income taxes or they owe a business tax and don't qualify to apply for a payment plan online?
Does that mean they can't apply for a payment agreement at all?
SCOTT REISHER: No.
They can still apply.
They just can't do it online.
TAMARA WARD: I see.
So, for those who do qualify, what are some of the advantages of the Online Payment Agreement?
SCOTT REISHER: Well, online plans are streamlined, which means we are going to ask you for less in the way of financial information.
You will have no direct contact with the IRS.
You don't have to call or write to us.
There's no waiting for the IRS to get back to you on whether or not your payment agreement is approved.
The online application gives you immediate notification.
We're not going to consider other options before we agree to a payment plan.
You can set up direct debit payments so your payments are made automatically.
You can amend an existing agreement online.
You can raise or lower the payment amount, change the due date, or change to a direct debit agreement so you don't have to write and mail a check each month.
Tax professionals can use it on their client's behalf.
And chances are that when you finish your online application, your agreement will be approved.
TAMARA WARD: Scott, that sounds good.
Let's move on to how folks can apply.
What do they have to do?
SCOTT REISHER: Here's an example.
Let's assume you have filed all your previous year's individual income tax returns.
You're filing your current year's return online and you realize you're going to owe $5,000 but can't pay the balance due by next month's April 15th deadline.
Here's what you can do.
Go ahead and file and pay whatever you can with your return.
The amount of late payment penalty and interest you will owe is based on your balance due as of April 15th.
The more you pay before the due date, the less you will owe.
Your tax software will provide a voucher you can use to send us a check.
Or go to IRS.gov and explore the options for making a payment by credit or debit card or by electronic funds transfer.
Let's say you set up an electronic funds transfer for April 10th for a partial payment of $500.
Now, on April 15th, your balance will be $4,500, and that's what your penalty and interest will be based on.
SCOTT REISHER: Now, go back to the IRS homepage and click "Tools" and then "Online Payment Agreement." TAMARA WARD: So, now we're at the Online Payment Agreement application page.
SCOTT REISHER: As you can see, the first page of our Online Payment Agreement application spells out three steps.
Step 1 is "determine your eligibility." I've already mentioned the eligibility requirements.
Now step 2, gather your information.
This is an important step.
Everything you need is listed here, and most of it is self-explanatory, so let me focus on just a few things.
First, if you don't have a Personal Identification Number, or PIN, don't worry.
You'll be able to get one during the application process.
If you've waited until we sent you a bill to apply for a payment plan, you'll need the "Caller I.D.
number" from your billing notice.
And one last thing, have an idea of how much you can afford to pay each month and the day of the month you can pay it.
For this, gather your monthly income and expense information.
Our online application includes a handy payment estimator you can use.
Now you're at step 3, "Apply for a payment agreement." Once you click on that, you'll be filling out the application online.
First, you answer the appropriate questions about your status and then you are taken to a log-in screen.
The log-in screen is where you'll need your Social Security Number and PIN.
You can create a PIN here if you need one.
Next, we'll ask you to update our records by providing the name and address of your bank and employer, we'll give you a chance to update your address, and if we've already processed your return, you'll see your balance due.
TAMARA WARD: I noticed the next step is choosing the type of payment plan.
What options do you have here?
SCOTT REISHER: You'll be given three choices.
You can either pay now, meaning within 10-days, request a short-term payment extension of up to 120 days, or request a monthly payment plan.
Before we detail those options, let me explain why it is to your advantage to pay sooner.
First, you'll pay less in penalties and interest.
And second, there's no user fee to set up a short-term payment extension of 120 days or less.
TAMARA WARD: So, the IRS charges fees for the monthly payment agreements longer than 120 days?
SCOTT REISHER: Yes.
The one-time user fee is $52 if you make your payments by direct debit and $105 if you make your payments by payroll deduction or sending in a check every month.
Let's say you choose the monthly payment plan option.
The next thing you will see on your screen is the monthly payment estimator.
If you know how much you can afford each month, skip this step.
If you're not sure, enter your monthly income and expenses and see what you get in terms of a monthly payment amount.
If you're comfortable with the estimated amount, continue on.
Now you enter your monthly payment amount, choose your payment due date and a payment option, either direct debit, payroll deduction, or mail a check every month.
The choice of payment is yours, but we do encourage you to select direct debit.
The user fee is less and the payments are made automatically until your balance is paid off, no remembering to write and mail a check every month.
TAMARA WARD: Seems to be really clear-cut with those online prompts.
So, is the taxpayer done at this point?
SCOTT REISHER: Almost.
The next screen you'll see is the terms and conditions of your payment plan.
Read these carefully.
In fact, you probably want to print it.
You'll be asked whether you agree to the terms and conditions.
If you say yes, the next screen should say, "Congratulations! You have been approved for an Installment Agreement." Also, the monthly payment amount and due dates are restated on this page.
You definitely want to read over this page carefully and print it for your records.
And that's all there is to it.
TAMARA WARD: Well, that's a lot of great information, Scott.
Thank you for your time.
Today we've given you an online option to set up a payment plan for your tax bill using the fast, easy, and secure Online Payment Agreement application.
We hope you found this information helpful.
Thanks for watching.