Form 9465: Installment Agreement Request

What Is Form 9465: Installment Agreement Request?

Every year, many Americans file their tax returns only to find they owe more income tax than they can afford to pay immediately. Additionally, many taxpayers owe back taxes and have no idea how to pay their tax debt.

If you're in this situation, the Internal Revenue Service (IRS) has a program that allows taxpayers to pay taxes in monthly installments instead of in a large, one-time lump sum. Filing Form 9465: Installment Agreement Request allows you to set up a monthly payment plan with the Internal Revenue Service (IRS), so you can pay your tax debt over time. However, keep in mind that penalties and interest will continue to accrue until your balance is paid off.

Who Can File Form 9465: Installment Agreement Request?

Taxpayers unable to pay their tax obligation can file Form 9465 to set up a monthly payment plan if they meet certain conditions. Generally, taxpayers owing $10,000 or less will have their application automatically approved with the following stipulations:

• The taxpayer must have filed all past tax returns in order to qualify for this agreement.
• The taxpayer has not entered into an installment payment agreement in the last five years.
• The taxpayer is unable to pay taxes in full when they are due.
• Can pay the entire outstanding balance within three years.

If you owe more than $50,000, you cannot file electronically and need to return a completed IRS Form 433-F.

Where to Get Form 9465

All pages of Form 9465 are available on the IRS website. If you owe $50,000 or less in taxes, penalties, and interest, it's also possible to avoid filing Form 9465 and complete an online payment agreement (OPA) application instead.

Who Should Not File Form 9465

Individuals already making payments under an existing installment agreement with the IRS are not eligible to use Form 9465. Instead, they should contact the IRS at 1-800-829-1040 for additional payment arrangements. Individuals who should also call instead of filing Form 9465 include those who are in bankruptcy and want to make an offer-in-compromise.

Special Considerations When Filing Form 9465

Setting up an Installment Plan

Generally, repayments are required to be completed within 72 months or less, depending on how much you owe. Note that the IRS charges a one-time setup fee based on your payment method. These are the options:

• $31, if you set up an online payment agreement and make your payments by direct debit
• $107, if you don’t set up an online payment agreement and make your payments by direct debit
• $130, if you set up an online payment agreement, but don’t make your payments by direct debit
• $225, if you don’t set up an online payment agreement and don’t make your payments by direct debit

It's also $225 if you set up a payroll deduction for what you owe, and you'll need to fill out IRS Form 2159, Payroll Deduction Agreement, too.

The IRS waives the $31 online setup fee for low-income individuals who make direct debit payments. Low-income taxpayers also pay a reduced fee⁠—$43 instead of $130⁠—if they don't make payments via direct debit or the fee may be waived entirely.

If the IRS initially decides you don't meet the qualifications for the reduced fee, you can ask it to reconsider by filing Form 13844, Application for Reduced User Fee for Installment Agreements.

There is an $89 fee to modify or terminate the installment agreement ($43 for low-income taxpayers). In addition, interest and penalties are applied to the unpaid balance until it is paid off.

Penalties for Unpaid Taxes

The IRS charges a daily compounding interest rate equal to the short-term federal funds rate plus 3%, calculated on a quarterly basis. In addition to the interest charged, the IRS will also assess a failure-to-pay penalty of 0.5% on the unpaid balance each month or part of a month up to a maximum of 25%. For taxpayers who file on time and are on an installment plan, the penalty decreases to 0.25% for each month the installment plan is in effect.

The total penalties and interest can quickly add up to 9% to 12% per year, and taxpayers must be prepared to pay this amount in addition to their principal balance. For this reason, taxpayers are strongly encouraged to make more than the minimum monthly payment whenever possible.

Example of Penalties

Fred files his 2023 taxes in April of 2024 and owes a total of $7,000. He submits Form 9465 with his return and establishes a 36-month installment payment plan. If the federal funds rate is 3%, the IRS will charge Fred a 6% interest rate on the outstanding balance.

If the failure-to-file penalty is 0.5%, then he will also pay another 6% annually in penalties until the balance is paid off⁠—12% of $7,000 is $840, although this amount will decrease monthly as the principal is repaid.

Methods of Payment

Taxpayers can send personal checks, cashier's checks, money orders, or pay by debit or credit card. The Electronic Federal Tax Payment System (EFTPS) may also be used (this requires separate registration). Payments must be made by the specified due date each month.

Payments can be made between the first and 28th of each month. To avoid defaulting, those who pay by check or money order are advised to mail in their payments at least seven to 10 business days before the due date to ensure timely receipt.

The IRS has now upgraded its website to allow taxpayers to modify their installment agreements online. Individuals can now revise their payment dates and even the terms of their agreement, including the payment method and other details. Authorized representatives can also access the site on behalf of their clients.

Benefits of Installment Plans

The primary advantage of an installment plan is that it allows taxpayers to pay off their federal taxes in manageable amounts. As long as the terms of the agreement are honored and the taxpayer is able to make their payments, any collection efforts by the IRS or private collection agencies will cease.

Eligible individuals can also get a six-month extension for filing their tax returns and possibly paying their tax bills if they are under certain financial hardships.

The Bottom Line

Taxpayers with outstanding tax bills don't have to panic about how to pay their taxes. The installment-agreement application process is straightforward. However, penalties and interest can add up over time. Individuals who are unable to pay their federal tax bill and do not make arrangements with the IRS may be subject to the IRS collection process and more penalties and interest than if they had made arrangements upfront to make installment payments.

You can access Form 9465 from the IRS website or by calling 1-800-829-1040.