Kentucky State Tax Payment Plan Guide

Many people in Kentucky owe more taxes than they can pay. If you don't pay your income tax on time, you could face more penalties, interest, and long-term money problems. This can happen if you get an unexpected bill, change jobs, or don't get paid on time as an independent contractor. The good news is that the Kentucky Department of Revenue has set up payment plans to help people pay off their tax debts more easily.

This guide shows you how to ask for and get a payment plan for your state taxes. It also discusses how to apply, what happens after you file, and how to avoid default. If you owe back taxes, got a notice about an unpaid balance, or want to pay off your tax debt over time, knowing your options can help you take charge before things get worse.

You'll also learn how installment agreements work, what papers you must send in, how your bank handles payments, and how the process differs from IRS programs. If they do things the right way, Kentucky taxpayers can pay their taxes over time, avoid more fees, and stay in good standing with the state.

What's the Kentucky State Tax Payment Plan?

A Kentucky state tax payment plan—formally called an installment agreement—is a payment option that allows individuals and businesses to pay their state tax debt over time through scheduled monthly payments. The Kentucky Department of Revenue offers these plans to help taxpayers who can't pay their taxes on time. Instead of requiring full payment up front, they let taxpayers pay in installments. This facility is essential for people who have trouble with money for a short time, have irregular income, or have unexpected expenses.

The program aims to help taxpayers pay off their debts in an organized way without having to deal with harsh collection methods like wage garnishment, bank account levies, or tax liens. You sign a legally binding contract that says you will pay a certain amount each month until your balance is paid off. As long as you remain in compliance—meaning you file all required tax returns, make payments on time, and do not incur new unpaid taxes—your agreement remains active, and the state will typically pause or prevent collection activity.

While the program shares some similarities with the Internal Revenue Service’s federal installment plans, Kentucky’s version is explicitly tailored to state obligations, such as personal income tax, business tax balances, and other state-assessed fees or penalties. When you request a payment plan, you may be asked to provide your account number, current income details, and a proposed monthly payment amount. The Department will most likely evaluate the realistic payment amount based on your balance and overall financial condition.

Understanding how these agreements work is essential if you're trying to avoid costly consequences like accumulating interest, default notices, or further action by the Department. A tax payment plan is a good way to deal with back taxes, especially for people who want to stay in good standing but need more time to get their finances in order.

Types of Payment Plans Available

Kentucky lets people pay their taxes differently depending on how quickly they can pay off their debt. Each plan aims to help people and businesses pay their taxes in smaller amounts over time instead of all at once. The best strategy for you will depend on how much you owe and how well you can make regular monthly payments.

Payment Plans for a Short Time (Up to 180 Days)

With this option, taxpayers can pay off their balance in six months.

Best for:

This short-term tax payment option is best for the following situations:

• This option is best for people who can pay their full tax bill but need a short extension because they don't have enough money right now.
  
  
• The plan is for taxpayers who have had short-term money problems and expect to be back on their feet financially soon.

Key Features

When choosing this extended installment plan, keep the following key points in mind:

• You don't need a formal installment agreement, which speeds up the process and cuts down on paperwork.
  
  
• You don't have to pay a setup fee, which can lower your total cost compared to long-term plans.
  
  
• You have 180 days from the start date of the agreement to pay the full balance, which includes any interest and fees.
  
  
• During the repayment period, you must keep up with your tax filings. Failing to file new returns may result in additional penalties or disqualification from the arrangement.

Long-Term Installment Agreements (Over 180 Days)

These agreements are for taxpayers who need more than six months to pay their bill.

Best for:

This long-term payment option is most suitable for the following taxpayers:

• Individuals or businesses with substantial tax debts struggle to settle the entire amount within a brief timeframe.
  
  
• Taxpayers who need flexible repayment terms ranging from 12 months to 60 months to meet their financial obligations.

Key Features

When choosing this extended installment plan, keep the following key points in mind:

• To formally request the payment plan, you must submit Form 12A200, which collects essential financial and contact information.
  
  
• Depending on the agreement, associated fees may apply, including a one-time setup fee or ongoing monthly processing charges.
  
  
• You are required to submit documentation verifying your income and expenses. This helps determine your eligibility and monthly payment amount.
  
  
• Interest and penalties will continue to accrue on the unpaid portion of your tax debt throughout the plan's duration.

Electronic and Manual Payment Methods

Taxpayers can choose from several payment methods once the plan is approved:

• Electronic Check (E-check): Automatic withdrawals from your bank account, often with reduced fees
  
  
• Credit or Debit Card: Additional convenience fees may apply
  
  
• Mail: Send a check or money order to the Kentucky Department of Revenue; always include your name, account number, and tax period on the payment
  
  

These flexible options allow taxpayers to pay directly and maintain compliance with the agreement.

Who Qualifies for a Payment Plan in Kentucky? 

Not every taxpayer qualifies automatically for a payment plan. The Kentucky Department of Revenue evaluates each request to ensure the taxpayer cannot pay the full amount by the due date.

Eligibility Requirements

To qualify, you must meet the following conditions:

1. Demonstrate financial hardship
   You must prove that full payment would prevent you from meeting basic living expenses or operating your business.
   
   
2. Be current on all tax filings.
   All required income tax and business tax returns must be filed before applying.
   
   
3. Provide a reasonable payment proposal.
   Your suggested monthly payment must reflect your income and expenses.
   
   
4. Show a faithful effort.
   You must intend to resolve your debt and stay compliant with tax laws.
   
   

Who May Not Qualify

Taxpayers generally will not be approved if they:

• Have access to funds or credit that could cover the balance
  
  
• The taxpayer has previously fallen behind on several installment agreements.
  
  
• We are unwilling to provide financial documentation. We are requesting a plan for unfiled tax years.
  
  

Documentation Requirements

Applicants must be ready to submit supporting documents such as

• Proof of income (pay stubs, business receipts)
  
  
• Recent tax returns
  
  
• Bank account statements
  
  
• Details about monthly expenses
  
  
• Evidence of any financial hardship (e.g., medical bills, job loss)
  
  

Understanding these criteria will help you prepare a stronger request and avoid unnecessary delays.

How to Apply for a Kentucky Tax Payment Plan 

Applying for a tax payment plan involves gathering documents, completing official forms, and submitting a request to the Kentucky Department of Revenue. Following this process carefully increases your chances of approval.

Step 1: Gather Required Documents

Before applying for a payment plan, you must collect and prepare several essential documents. These will help the Department of Revenue assess your financial situation and determine your eligibility for an installment agreement. Be sure to have the following items ready:

• Please ensure that you have filed all tax returns with a balance due and any supporting schedules or attachments.
  
  
• You should also have a completed copy of Form 12A200, the official Kentucky Installment Agreement Request form.
  
  
• Please provide evidence of your income, such as recent pay stubs, W-2s, or benefit statements.
  
  
• Please provide your bank account information if you wish to set up automatic electronic payments.
  
  
• Your monthly bills and living expenses, such as rent or mortgage payments, utilities, insurance, and other recurring costs, should be documented.
  
  
• Your assigned account number can be found on the notice you received from the Kentucky Department of Revenue.
  
  

Step 2: Fill Out Form 12A200

Form 12A200 formally requests an installment agreement with the Kentucky Department of Revenue. When completing the form, you will be required to provide the following information:

• You must provide your personal and contact details, which include your name, address, phone number, and email.
  
  
• Your tax notice or account summary indicates the total tax amount you owe.
  
  
• The amount you can pay immediately will be considered a down payment toward your balance.
  
  
• Your proposed monthly payment amount is based on your income and living expenses.
  
  
• You can specify your preferred payment method: an e-check, a direct bank withdrawal, a credit card, or a mail-in check.

Step 3: Submit Your Application

If applying with your current return:
Attach Form 12A200 to the front of your tax return.

If applying for previous-year debt: Mail the completed form to

Division of Collections  

Kentucky Department of Revenue  

P.P.O. Box 491  

Frankfort, KY 40602-0491  

Make sure to use the original color-coded form. Copies may delay processing.

Step 4: Monitor for a Response

After you submit your request, the Department typically responds within 90 days. While you wait, it is important to remain proactive and stay in good standing:

• Continue making voluntary payments if you are able to. These payments can reduce your outstanding balance and demonstrate your good faith.
  
  
• Ensure that all new tax returns are filed on time. Staying current on your tax obligations strengthens your case and avoids additional penalties.
  
  
• Respond promptly to any communication from the Department, whether by mail or phone. Timely responses help prevent delays or complications in the review process.
  
  

Step 5: If Approved or Denied

Once your request is reviewed, the Department will notify you of its decision.

• If your request is approved, you will get an official letter that tells you when your payments are due, how to make them, and any other instructions you need to follow.
  
  
• You still have choices if your request is turned down:
  
  
  
  • If you want to apply again, you can send in more paperwork that supports your case or clarifies any questions.
    
    
  • The Taxpayer Advocate Service is an independent group that helps people with problems with the tax agency.
    
    
  • You can also talk to a qualified tax professional, who can look at your situation and suggest the best course of action.

If you follow these steps, you can avoid extra fees and get closer to paying off your tax debt in a way that works for you.

The three developed sections below follow your formatting and SEO rules, such as using keywords naturally, writing in a way that is easy for beginners to understand, and having a clear structure.

What Happens If You Default on a Payment Plan? 

Once your payment plan is approved, it is essential to follow all agreement terms. Defaulting can lead to serious financial and legal consequences. The Kentucky Department of Revenue monitors compliance closely; even one missed payment can trigger a default.

What Causes a Default?

If you don't meet any of the following obligations, you may be in default of your installment agreement:

• Missing a scheduled payment without making prior arrangements may result in a default status.
  
  
• Failing to file future tax returns by their due dates can jeopardize your agreement and trigger default.
  
  
• Not paying any new tax bills as they become due may lead to termination of your payment plan.
  
  
• Your application may revoke the agreement if you provide inaccurate or incomplete information.
  
  
• A default determination may also occur if you ignore official notices or do not respond to attempts to contact you. It's important to stay engaged and responsive throughout the process.

Immediate Consequences

If you default on your installment agreement, the Department will notify you that it has been terminated. The following consequences may occur:

• The entire outstanding balance becomes immediately due and payable.
  
  
• Collection efforts may resume, including aggressive enforcement actions such as
  
  
  
  • Garnishing your wages
    
    
  • Freezing or levying funds from your bank account
    
    
  • Seizing your personal or business property
    
    
• You may be assessed reinstatement fees and incur additional penalties due to the default.
  
  
• You could lose eligibility for future payment plans, making it more difficult to resolve your tax debt under favorable terms.

How to Recover from Default

If you default but still wish to resolve your tax debt, you may:

• Request reinstatement of the plan by catching up on missed payments
  
  
• Contact the Department of Revenue by phone at (502) 564-4921 to discuss modified terms.
  
  
• Submit updated financial documentation to show your current ability to pay
  
  
• Request a hardship review or explore the Offer in Settlement program.
  
  

Staying proactive and keeping open communication can often prevent long-term damage to your account.

Interest, Penalties, and Collection Costs 

The original tax bill is only part of the total cost when you owe Kentucky state taxes. Additional fees, penalties, and interest accumulate over time—especially if you delay payment or default on an agreement.

Interest Rates

Interest on unpaid income tax is set annually. As of 2025:

• Interest accrues at 10% per year
  
  
• It compounds daily on the remaining balance.
  
  
• Interest cannot be waived, even if penalties are removed.
  
  

Penalties

The Kentucky Department of Revenue may impose several types of penalties:

• Late Filing: 2% per 30-day period (up to 20% total)
  
  
• Late Payment: 2% per 30-day period (up to 20%)
  
  
• Failure to File: 5% per 30-day period (up to 50%)
  
  
• Minimum Penalty: $10 to $100, depending on the situation
  
  

Cost of Collection

If the tax remains unpaid after 60 days, a 25% collection fee is added to your balance. This fee is separate from other penalties and cannot be reduced.

Managing Total Cost

To reduce the total amount you pay over time, consider taking the following proactive steps:

• Make partial payments before your payment plan is officially approved. Advance payments can lower your overall balance and reduce the interest and penalties that accrue while your application is pending.
  
  
• Opt for shorter installment terms whenever possible. Selecting a shorter payment period can limit the amount of interest accumulating over time, saving you money in the long run.
  
  
• Avoid missed deadlines or inaction that could lead to collection charges. Timely responses and consistent payments help prevent additional fees and enforcement actions.
  
  
• Use a bank account or electronic check (e-check) to make your payments. Unlike credit card payments, these methods typically do not incur additional processing fees, but often with added charges.

Other Relief Options for Taxpayers in Hardship 

If you find it genuinely difficult to afford even a minimal monthly payment, Kentucky provides alternative options to help resolve your tax debt. Typically, taxpayers facing severe hardship are the ones eligible for these programs. Are they the ones eligible for these programs?

Offer in Settlement

The Offer in Settlement program allows eligible taxpayers to resolve their tax debt by paying less than the full amount they owe. This option is typically available to individuals experiencing severe financial difficulties who cannot reasonably pay the full balance.

You may qualify for this program if:

• Paying the full balance would result in severe financial hardship. If making payment would compromise your ability to afford basic living expenses, you may be eligible.
  
  
• You can demonstrate that your income is limited and your assets are minimal. Supporting documentation must show that your financial resources are insufficient to satisfy the debt.
  
  
• The Department determines that collecting the full amount is unlikely. Your offer may be considered if your financial situation suggests that the state is unlikely to recover the full tax debt.
  
  

All applications are carefully reviewed and must include extensive financial documentation to support your eligibility.

‍

Currently Not Collectible Status

If you cannot make any payments toward your tax debt without sacrificing essential living expenses, you may qualify for Currently Not Collectible (CNC) status. This status provides temporary relief from active collection actions.

While your account is in CNC status:

• Collection efforts are temporarily paused. This means the Department will not take enforcement actions, such as wage garnishments or bank levies, during this time.
  
  
• You may continue to receive periodic notices. Despite no collection action, these letters remind you of your outstanding balance.
  
  
• Your account remains in the tax agency's system, but no immediate enforcement will occur. This gives you time to stabilize your finances without the pressure of ongoing collection activity.

When to Seek Help

If you are unsure which option best fits your tax situation, seeking assistance from a qualified professional may be beneficial. The following resources can provide guidance and support:

• Consult a tax professional who can help you understand your filing options, evaluate your eligibility for relief programs, and guide you through the appropriate procedures based on your unique financial circumstances.
  
  
• Contact the Taxpayer Advocate Service, an independent organization within the IRS that assists individuals in resolving complex or delayed tax issues that have not been resolved through normal channels.
  
  
• If you are facing significant economic difficulties, seek advice from a nonprofit financial counselor. These counselors can help you create a budget, manage debt, and explore responsible solutions for paying your taxes.

These resources can help you explore your rights and responsibilities before you commit to any agreement.

Frequently Asked Questions

How do I request a payment plan for Kentucky state taxes?

To request a payment plan, file Form 12A200 with the Kentucky Department of Revenue. You must provide your account number, recent tax returns, and proposed tax payment amount. Plans allow taxpayers to pay their tax bill over time, rather than in full. Please ensure all supporting documents accompany your request, and kindly monitor your account following submission. You may contact the department by phone or mail for assistance.

Can I qualify for a payment plan if I owe back taxes from prior years?

Yes, taxpayers who owe back taxes can qualify if they meet the requirements. You must file all past due tax returns and prove you cannot make a full payment by the due date. The Kentucky Department of Revenue may request income documents and account statements to review your situation. A properly structured installment agreement can help you pay what you owe in manageable payments.

What happens if I miss a tax payment while on a plan?

If you miss a tax payment, your installment agreement may default. The Kentucky Department of Revenue will send a notice, and you could face additional penalties or interest. Your full balance may become due immediately. To avoid this, stay current on all income tax filings, pay directly from your bank account if possible, and contact the department promptly to discuss options if your income or finances change.

Can I pay my taxes using a money order or by mail?

You can mail a money order or check to the Kentucky Department of Revenue. Include your name, account number, and the tax period on the payment. While mail is a valid option, electronic payments from a bank account are generally faster and more secure. Always allow extra time for mail delivery to ensure your payment arrives before the due date.

Will a tax payment plan affect my credit or be reported to the IRS?

Tax payment plans for the state are not reported to the IRS or credit agencies. However, if you fail to comply, the Kentucky Department of Revenue may file a state tax lien. This public record can affect your credit. Unlike the Internal Revenue Service, Kentucky’s system focuses only on state-level debt, but failing to resolve your tax bill can still result in serious financial consequences for taxpayers.

What if I am an independent contractor or own a small business?

Independent contractors and business owners can qualify for a payment plan, but the department may require more detailed financial records. Business tax debt and unpaid personal income tax are eligible for installment agreements. Be prepared to file updated tax returns, provide proof of business income, and demonstrate that you cannot make a full payment. The review process may take longer due to the complexity of business accounts.

Who can I contact if I disagree with a notice or need help applying?

You can contact the Taxpayer Advocate Service, an independent organization that helps taxpayers resolve disputes and issues with the Kentucky Department of Revenue. They can assist with problems related to payment options, unfair penalties, or unresolved requests. You may also call the department directly by phone or send your concerns by mail. Always include your account number and supporting documentation to avoid delays.

‍