You’re not alone if you fall behind on tax payments since thousands of US taxpayers struggle to meet their yearly federal tax obligations.
IRS Form 9465 provides a relatively painless solution to piling tax liabilities by allowing taxpayers to set up an installment agreement and pay off their debts within 72 months.
The most recent statistics indicate that the average tax refund in 2023 is smaller than the year before, which means that tax liabilities for most taxpayers are rising.
Ignoring the IRS’s demands for payment can only increase your tax debt, so the best solution if you find yourself in this situation is to enter an installment agreement as soon as possible.
Let’s see how filing IRS Form 9465 can be your solution for tax installment agreements and help you manage tax debt.
Key Points:
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The IRS allows taxpayers who cannot pay their entire tax debt with a single payment to set up an installment agreement and pay their back taxes in monthly installments.
You must use IRS Form 9465 if you owe more than $50,000, and you cannot request an online payment plan on the IRS website. If your tax liability exceeds this threshold, you must submit Form 433-F Collection Information Statement with Form 9465.
Besides calculating the monthly payments, you’re also required to indicate the payment method and the due date on the form. The IRS advises you to submit payments via direct debit deposits due to lower fees. But you can also use credit card, check, or money order payment methods.
Enrolling in the EFTPS program will enable you to schedule payments up to a year in advance and make same-day deposits for all payments you send to the IRS directly from your bank account.
The filing fee for Form 9465 ranges from $107 to $225, depending on how you set up an installment agreement and the payment method you choose.
At first glance, determining your eligibility or when to file Form 9465 can be confusing. However, the IRS provides clear guidelines regarding who and under which circumstances can use the form to request an installment agreement.
You should file this form if:
You must submit this form if you default on your current installment agreement and your tax liability is between $25,000 and $50,000.
On the other hand, you don’t have to prepare Form 9465 under the following circumstances:
The IRS will automatically approve your installment agreement request if you meet all of the requirements below:
It would help if you considered several factors before requesting an installment agreement on Form 9465.
Calling the IRS or speaking to a CPA before making the arrangements can help you understand your options better and determine whether filing this form is your best option.
You don’t need to be a tax expert to prepare Form 9465 because it only collects basic information about your financial situation and requires a simple calculation to determine the monthly payment amount.
The form has two parts, but to complete each one, you’ll need IRS Notice CP14 or similar notice, your latest tax return, and other financial documents you must use to establish your tax liability and determine the duration of the installment agreement.
Let’s review each part and see what you must do to complete it.
Disclose why you’re submitting the request, such as Form 1040 or Form 940, on the first line and then indicate the period for which you owe taxes.
Afterward, you must list your name, SSN, and address on Line 1a. If you filed a joint tax return with your spouse, you must also enter their name and SSN here.
The next segment is reserved for businesses that aren’t working anymore. It collects basic information about them, including their names, addresses, and EINs.
You should then enter the amounts you owe on lines 5 and 6 and add them to calculate your total tax liability.
The monthly payment amount you should enter on line 11a depends on various factors. But as a general rule, you should enter the highest amount you can afford to pay each month.
In addition, the installment payment you’re proposing should be higher than the minimum amount you must pay monthly to repay the debt in 72 months.
You must complete a financial statement on Form 433-F if you cannot afford to pay the minimum monthly installment amount for 72 months.
Once you determine how much you can afford to pay the IRS monthly, indicate when you want the installment agreement to start, choose a payment method, and provide bank details.
Form 9465 will instruct you to complete IRS Form 2159 to settle the tax debts via payroll deductions.
You and your spouse should sign the form at the bottom of the first page. In doing so, you’ll acknowledge the terms of the agreement and consent to the IRS contacting third parties and sharing your information with them while processing the request.
Filling out this section is only necessary if:
This section asks for information about your primary country of residence, marital status, the number of dependents you can claim on a tax return, payment frequency, and net income. If married, you should also indicate your spouse’s payment frequency and net income.
The rest of Form 9465 collects information about the number of vehicles in your household, car payments, child and dependent care expenses, health insurance premiums, and monthly court-ordered payments.
You can either e-file Form 9465 with your tax return or send its paper version to the IRS. But keep in mind that you cannot file this form electronically if the amount you enter on Line 9 is above $50,000.
The mailing address for the paper Form 9465 depends on where you live and which Form 1040 Schedules you attach to your tax return.
The IRS doesn’t stop charging interest and penalties after you file Form 9465 and enter an installment agreement.
That’s why you must account for the penalties and interests the IRS will add to the amount you owe until you repay the entire tax debt when determining the monthly installment amount you’re proposing.
However, the failure-to-file penalty will decrease from 0.5% of the balance due per month to 0.25% for the duration of the installment agreement. The interest rate equals the Federal Funds Rate plus 3% per quarter.
Hence, your tax liability will increase each year the installment agreement is in effect. However, the rate at which the balance due will grow depends on how much you owe and how much you can pay monthly.
IRS Form 9465 urges taxpayers to pay more than the amount they propose on this form every month to lessen the impact penalties and charges will have on their tax debt.
You can pay a part of your tax liability before submitting an installment agreement request. Remember to include the amount you pay on Form 9465 and send the proof of payment with the form to the IRS.
How Long Does the IRS Need to Approve an Installment Agreement?The IRS will approve or decline the installment agreement request up to thirty days after you submit Form 9465.
Which Due Date Should I Chose on IRS Form 9465?You can choose to release installment agreement payments on any date of the month from the 1st to the 28th. Remember that all payments must be completed by the due date you chose to avoid defaulting on the installment agreement.
How to Modify an Installment Agreement After I Submit Form 9465?Before modifying the due date or payment amount, you must wait until the IRS approves your installment agreement request. The fee for altering an installment agreement is $89 or $43 for low-income taxpayers.
Even though completing IRS Form 9465 won’t prevent the growth of your tax liability, entering an installment agreement will temporarily stop the IRS from levying your bank account or placing a lien on your property.
Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.