Have you ever owed the government money? So daring of me to ask, especially at the beginning of an article, but have you? A whopping 11 million Americans owe the IRS about $125 billion. The IRS periodically comes up with ways to mitigate this challenge by providing tax breaks or waivers.

So if you said yes to the question, the good thing is that you are not alone, but what's even better is that you can get out of that position by taking advantage of IRS payment plans.

What is an IRS payment plan?

Generally, a payment plan spreads out your lump sum payment requirements into equal periodic payments over time. Mostly, these payments should be made monthly. The time within which the full amount should be paid is decided and agreed upon beforehand.

The IRS allows for both qualified taxpayers and their authorized representatives, such as Power of Attorneys, to apply for a payment plan and thus begin payment.

As a taxpayer, failure to pay your taxes at the right time incurs you 0.5% as a penalty. The maximum for this will go up to 25% of what you owe, plus interest. Using the installment plan provided by the IRS will save you more than if you opt to pay via credit cards.

Eligibility for an IRS Payment Plan

The IRS may extend this olive branch to taxpayers, but it has requirements that individuals need to fulfill:

• You should owe $10,000 or less.
• You have filed your tax returns timely for the most recent five years.
• You are not bankrupt and are not in any bankruptcy proceedings.
• You can afford to pay the balance in full amount.
• You have agreed to pay your debt in full within three years rather than 72 months (6 years); you have agreed to pay within half the time.

Individual payment plan

To qualify for this plan, you will need to fulfill the following requirements:

• You must create an account with ID.me and do photo verification if you apply online. This applies to users using this service after November 14, 2021.
• Bank routing and account numbers if you apply for a direct debit payment plan.
• A balance due is shown on your return.

The IRS also provides for Power of Attorney for an individual. You will need your IRS-provided username or ID.me details. You will also be required to provide your taxpayer's social security number or individual taxpayer identification number, your Centralized Authorization File (CAF) number, caller ID, and other details such as the balance due.

Business payment plan

If your business owes $25,000 or less in tax debt, that is, the combination of tax, penalties, and interest, you can apply online for a long-term payment plan. Your payment will be divided into installments spread out into monthly payments.

You will be required to provide this information:

• Employer Identification Number (EIN)
• Establishment date (MM/YYYY)
• Caller ID
• Due amount
• Tax forms filed or examined
• Business address that was used in the most recently filed tax return
• Tax period

The amount specified in the plan will be added to the tax bill that is due. For the business payment plan, if you pay now, you will only pay the tax bill due. No setup fee or penalties are required since you pay the full amount immediately. You will incur any other fees incurred while paying via card.

You will pay the balance in monthly installments for the long-term payment plan. You should pay $31 as the initial setup fee, then every penalty accrued until you fully pay the balance. If your balance is above $10,000, you must pay through a Direct Debit Installment Agreement (DDIA).

If you make monthly payments using non-Direct Debit, $130 is the stipulated setup and any accrued penalties and interests added to your bill until you pay your tax balance in full. Non-Direct Debit includes non-automated methods, such as online payments, by phone, money order, checks, or debit and credit cards.

Revising existing payment plans will cost you $10. The revised monthly payments should augur with the minimum amount stipulated. If this is not the case, you will receive directions on completing a Form 433-B Collection Information Statement for Businesses.

You can also apply a Power of Attorney (POA) for businesses. You will need your Taxpayer's Employer Identification Number (EIN), IRS username, Centralized Authorization File (CAF) number, caller ID from the taxpayer's notice, tax form and tax period filed or examined, due balance amount, and the business's most recent address.

Types of payment plans

Full payment

The 'Pay Now' option works for individual and business payment plans. The IRS allows you to pay the full amount of tax you owe in one go, meaning no initial payment and no monthly installments are required.

Short-term payment plan

If you are sure that you can pay off your tax balance within 180 days, then this plan is for you. That's about six months to pay up all that you owe. There is no online application for this option; you can only do it via mail or phone.

Further, if you owe $100,000 and can pay within 120 days, that's about four months, you can apply for this plan online.

Long-term payment plan

If you owe $25,000 or less in combined tax, interests, and penalties, you qualify for online application for long-term payment plans.

Online Application

The list below indicates who can qualify and apply for IRS payment plans online:

• Individuals who owe less than $50,000
• Businesses that owe less than $25,000

While online application saves you time and is convenient, there are services that one cannot access online. Here are some of those that using online payment avails you:

• You can change your monthly payment amount.
• You can change your monthly payment due date.
• You can change an existing agreement to a Direct Debit agreement.
• You can change the bank routing and account number on a Direct Debit agreement.
• You can reinstate it after default.

Such options allow you to review and update your payment plan constantly.