If you owe taxes to the IRS that you are unable to pay, it is very likely that you entered in to an IRS installment agreement to pay back the tax debt.  For many taxpayers, an IRS installment agreement is a no-fuss way to pay back their tax debt and get back on track with their tax obligations.

However, changes in income, expenses, and life circumstances down the road can cause issues and lead to a situation where you are no longer able to pay your monthly installment agreement.  If you find yourself in a situation where you are no longer able to meet your ongoing installment agreement payments, there are things that you should know.

One Time Skip

The IRS generally allows a one-time payment skip without defaulting your installment agreement.  If you are having a rough month and missed your payment date, it does not mean that the IRS is automatically going to default your payment plan.  If you are still able to make your payments, continue to send them in.  Just remember to watch for notices in the mail.  If your payment plan is defaulted, you will start to receive collection notices again in the mail.

Defaulting a Direct Debit Installment Agreement

                 If you are on a payment plan where the IRS automatically debits your payment from a bank account each month, not being able to afford your monthly installment payments could create a large issue when it comes to paying for your other monthly bills.  So long as the money is in your account, the IRS will continue to debit it, regardless of whether you need it for rent.  If you are in a direct debit installment agreement, it is important for you or your representative to contact the IRS as soon as you are aware that you are no longer able to afford your current payment arrangement as it takes so time for the IRS to adjust their system to quit automatically debiting your account.

Alternative Tax Resolution Options

                 The IRS has many resolution programs for resolving your tax liabilities.  It is important to remember that you are not locked in to just one option.  If your financial situation changes, your resolution may need to change as well.  This may mean that you need to adjust your current payment plan, request a temporary hardship status, or file for a tax settlement on your remaining tax debt.  You may also qualify for non-IRS resolution, such as discharging the balances through a bankruptcy.

There are a variety of payment plan options offered by the IRS depending on your balance owed and your ability to pay.  One installment agreement offered is based solely on a monthly payment that will pay back your taxes, interest, and penalties within a certain amount of time.   Another type of installment agreement instead looks as how much you can afford to pay back based on an evaluation of your current income, expenses, and equity in assets.

If you instead find yourself in a situation where you are not able to pay any amount towards your back taxes, you may qualify for an Offer in Compromise to settle out your tax debt, or a currently non-collectible status to request a temporary hold while you get back on your feet.

Things Not to Do

      There are also some things that you do not want to do when you are trying to pay your back-tax debt through an installment agreement.

  1. Do not enter into an installment agreement that you cannot afford. We speak with many taxpayers that did not understand that there were other options for resolving their tax debt and instead enter into payment plans with the IRS that they cannot afford.  IRS payment plans generally last from 6-10 years.  You need to make sure that any payment plan you enter into is something you can currently afford along with all of your other living expenses.  It is important to speak with someone knowledgeable about IRS tax resolution options to make sure that you choose the best option for your financial situation.
  2. Do not ignore IRS notices. If you are in an installment agreement, you generally only get a few notices a year regarding your payment amounts and a summary for payments made throughout the year.  If you instead get a notice stating that you have a balance due with a date that it needs to be paid, it means that there is an issue with your payment plan.  There could be a balance that did not get included or your plan may have defaulted.  Either way, you or your representative need to contact the IRS to determine the issue and get it corrected.
  3. Do not make payments without establishing a payment plan. Many taxpayers believe that they can just send in payments towards their tax debt without establishing an official installment agreement.  While you can absolutely send in voluntary payments towards your taxes owed, this will not prevent the IRS from pursuing collection actions against you, including levies.  The IRS’s system is largely electronic.  If there is not resolution established on your account, the IRS may issue levies against you, even if you are sending in voluntary payments.


With all of the various IRS tax debt resolution options and the financial analysis that goes into determining which one is best for you, it is highly advisable to speak with a tax professional to determine which resolution option is best for you.  If your financial situation changes after you have a payment plan established, remember, you are not locked into that plan.  As your financial situation changes, your IRS resolution may also need to change.  If you need help resolving your back taxes, call Austin & Larson Tax Resolution to speak with a tax expert today.