Ask the Taxgirl: Installment Plans

Taxpayer asks: After filing my taxes, the end result was that I owe just over $800. Gasp! This is three weeks pay for me and I have NO savings at all. Can I make payments to the IRS? Is there any help they offer for people in my situation?

Taxgirl says:Absolutely! You can establish a payment plan with IRS to pay taxes that you cannot pay in full.

Since you owe less than $25,000, you can complete an online application or manually fill out a federal form 9465 (downloadable here as pdf).

If you owed more than $25,000, not only would you personally be in a complete panic attack now (since you’re already freaked out about the possibility of $800), but you could not complete the online application.  You would still complete a federal form 9465 but you might also need a federal form 433F.

The interest on most of these agreements is relatively low.

However, here’s the rub: there’s now a fee for these agreements. The fee for new installment agreements entered into after January 1, 2007 is $105 or $52 for direct debit agreements.  If that’s too steep and you think you qualify, taxpayers with income at or below established levels, based on the Department of Health and Human Services poverty guidelines (starting at $10,000 for one person households), can pay a reduced user fee of $43 for establishing new agreements.

For a sum as low as $800, you might consider borrowing the money from a friend or family member in order to avoid the user fees. If that doesn’t work, the fee and interest isn’t that bad if you can pay it off within a year, so it’s a good option.