In cases where you’re not able to pay the entire balance due while filing your taxes, seeking an IRS installment agreement can be an ideal way to stay current with the IRS and avoid collection action.

That last bit is one of the biggest advantages to set up an installment agreement as promptly as you can. Once you file your taxes and the balance becomes due, the IRS will begin sending letters asking for payment. If you’re reading this, perhaps you’ve already begun to see these letters.

They will continue to try to collect on that balance until one of two conditions is met:

  1. The balance is paid in full, or
  2. You’ve made some sort of arrangement with them to satisfy the debt

Generally, it’s not advisable to simply start making incremental payments to the IRS without a formalized agreement because although they will see the payments, they will still be running the stopwatch so to speak on how long that balance has been outstanding.

After a balance is open for 120 days without being paid up, they generally begin collection action that can range from garnishing your wages to placing liens on your assets until the balance is paid.

On the other hand, setting up an installment agreement with them makes you “current” with them immediately and stops that stopwatch toward collection action.

As long as you make faithful payments by the due date each month your account will remain in good standing until the balance is paid fully.

With that said, let’s discuss the two primary ways you can set up an IRS installment agreement.

The Streamlined Installment Agreement

This is the easiest method. As long as your total tax balance is under $10,000 you can initiate an installment agreement just for the asking, either by phone or by visiting:

There is a setup fee involved that gets added to the total balance you’ll be paying, but otherwise you can choose between two timespans:

  1. Short term payment plan, which you would select when you know you’ll be able to pay the entire amount within 120 days (or 4 months). The total balance will be divided by 4, and that will become your monthly payment for that time period.
  2. Longer term payment plan, in which you’ll need more than 120 days to pay the full balance. When selecting this option you will be asked what amount you are comfortable paying per month, and will be given some options about what day you’d like your due date to be each month.

Income-Driven Installment Agreement

This type of installment is primarily for taxpayers who owe more than $10,000 in back taxes. Once the balance is over that amount the IRS will no longer simply allow you to apply for a payment plan for the asking and specify an amount.

They want the balance paid as quickly as possible, and will seek the maximum amount from you each month they feel you can afford.

Entering into an installment agreement in this case means providing them with records for several months of income and household expenses. The expenses are held against federally established standards, meaning you can count all your utilities for instance up to the amount of that federal standard.

After those computations, the difference between your income and expenses is essentially what they will be looking for as a monthly payment.

If your balance isn’t too far over the $10,000 mark — say for instance you owed $12,000 — you could make a $2000 payment to bring your balance to the $10,000 limit and then apply for a streamlined installment agreement to make the process easier.

Otherwise, it may be best to contact a tax professional for assistance getting into compliance with the IRS to avoid tax liens and other more serious collection measures.