IRS Installment Agreement Use Climbs, New Data Shows

More taxpayers are turning to payment plans after filing tax returns and discovering a balance due. Newly released IRS Data Book figures show installment agreements collected more than $16 billion in fiscal year 2024, highlighting how structured payment arrangements are becoming a common way to manage federal income tax debt.

New Data Shows More Taxpayers Using Payment Plans

The IRS Data Book reports that collections through installment agreements rose more than 12 percent in fiscal year 2024 compared with the prior year. The annual report tracks how the agency processes tax returns, handles income tax returns, and collects unpaid tax balances tied to federal income tax obligations.

The statistics suggest a growing reliance on payment options such as installment agreements and online payment agreements as taxpayers manage tax bills. Many individuals who complete their income tax returns discover a tax balance, or tax due amount, that cannot be paid immediately.

For taxpayers with a balance due, the agency offers installment payment plans that spread a tax liability into scheduled monthly payments. These arrangements help taxpayers address an unpaid tax balance while avoiding more serious collection actions tied to the IRS.

Filing Season Often Triggers Requests for Installment Plans

Requests for a payment plan typically increase during filing season, when individuals finalize tax returns and calculate their tax balance. When the balance due exceeds expectations, taxpayers often seek installment agreements rather than paying the full tax debt in a single payment.

Cash flow constraints are among the main reasons taxpayers request a payment installment plan. Housing expenses, medical costs, and other financial obligations can make it difficult to pay a personal income tax liability immediately.

Digital access has also changed how taxpayers apply. Through Online Services and an IRS Online Account or Online Services account, individuals can request installment plans through the Online Payment Agreement Request Service or other Online Services portals.

Online Tools Make Payment Agreements Easier to Request

Online payment agreements allow taxpayers to apply for an installment payment agreement and track payment history through their IRS Online Account. In many cases, the system provides quick approval if eligibility rules are met.

Direct debit and other automatic payments are often recommended to ensure scheduled monthly payments are made on time. Direct debit payments can also reduce default risk and help taxpayers maintain a current installment agreement.

Different Payment Agreement Types Available

Short-term payment options allow taxpayers to resolve a tax balance within about 180 days. Longer arrangements, known as installment agreements, spread payments across several years through monthly payments.

Some taxpayers qualify for a Partial Payment Installment Agreement, which allows partial payments toward a tax liability when full repayment within the collection period may not be possible. In these cases, the IRS reviews financial statement information to determine eligibility.

Applicants may be asked to provide documentation such as a collection information statement using Form 433-F, Form 433-B, or Form 433-H. Businesses, limited liability companies, and individuals may submit these forms along with an Installment Agreement Request using Form 9465.

Interest and Penalties Continue During Payment Plans

Entering an installment plan does not eliminate penalties and interest on a tax balance. Interest and penalties continue to accrue on the unpaid tax balance until the liability is fully paid.

These charges can increase the overall tax debt during the repayment period. Paying more than the minimum scheduled monthly payments may reduce penalties and interest costs.

Enforcement Risks if Tax Debt Is Ignored

Failure to address an unpaid tax balance may lead to enforcement action under the federal collection process. Possible measures include IRS levy actions, wage garnishment, bank levy procedures, or earnings withholding.

The agency may also file a Notice of Federal Tax Lien, which creates a tax lien against property until the tax balance is resolved. In some cases, other consequences, such as MVA/professional license holds affecting a driver's license or vehicle registration, may occur under certain state collection programs.

Taxpayers facing financial hardship may contact the Taxpayer Advocate Service or Low Income Taxpayer Clinics for assistance in understanding taxpayer rights under the Taxpayer Bill of Rights. These programs can help individuals review collection alternatives before enforcement action occurs.

Sources

• IRS Data Book Fiscal Year 2024
• Payment Plans and Installment Agreements
• Online Payment Agreement Application
  

‍By William Mc Lee, Editor-in-Chief & Tax Expert—Get Tax Relief Now