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My friend owes the IRS about $6,000 for the tax year 2021.

He did some researches and found this link on the IRS webpage about paying tax in installments:

https://www.irs.gov/payments/payment-plans-installment-agreements#

Before he begins to apply for the payment plan on that IRS webpage, he would like to know if anyone in this forum can help him with the following questions:

  1. Does the IRS have payment plans (monthly) for 1 year only ? or does the IRS have payment plans (monthly) for 2 years or even 3 years ?

  2. What is the approximated IRS interest rate if he goes with the payment plan for 1 year only, which means all the debt ($6,000) will be paid off in 12 months ?

  3. What is the approximated IRS interest rate for a payment plan that lasts for 2 years ?

Thanks.

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  • A 2-year payment plan for an annual tax sounds like a bad idea.
    – MSalters
    Mar 18, 2022 at 15:48
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    @MSalters: if it's the same or similar every year, yes, but if it's a one-time event, like you sold a business or won the lottery, it's quite reasonable. OTOH standard money.SX advice is to be ready to cover 3-6mo expenses, and for most people that's well over 6k.
    – dave_thompson_085
    Mar 18, 2022 at 17:17

1 Answer 1

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The interest rates are announced quarterly in revenue rulings. Here's the announcement for Q2'2022. The underpayment interest is 4%.

Does the IRS have payment plans (monthly) for 1 year only ? or does the IRS have payment plans (monthly) for 2 years or even 3 years ?

You apply for the plan online and you need to provide all the information needed (form 9465 and form 433-F). There you need to specify the monthly payment you want (form 9465) and justify it (form 433-F). The duration of the plan is how long it would take to pay the debt off with that monthly payment.

What is the approximated IRS interest rate if he goes with the payment plan for 1 year only, which means all the debt ($6,000) will be paid off in 12 months ?

What is the approximated IRS interest rate for a payment plan that lasts for 2 years ?

The interest is compounded daily. The interest rate doesn't depend on the number of installments, but the daily balance does. So you can do the math, obviously the longer it takes to repay the debt - the more interest there will be paid.

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    Non-partial IA under $50k is 'streamlined': you don't provide collection (433) information, and can choose up to 6 years unless it would get too close to statute expiration (not the case for this Q); of course as you say longer term results in more interest. In addition to what is labelled interest, you must also pay half the usual failure-to-pay 'penalty' = 0.25% per month of the balance, which is like 3% more interest, to a limit of 25% (takes over 8 years).
    – dave_thompson_085
    Mar 18, 2022 at 17:17
  • The announcement linked to in your answer appears to refer to 4% per calendar quarter, so would that be 17% per year (1.04 ^ 4), in the often-assumed units?
    – Andrew Morton
    Mar 18, 2022 at 19:10
  • @AndrewMorton I believe the rate is annual, but I couldn't find them explicitly saying that anywhere. It's Fed rate +3% per statute
    – littleadv
    Mar 18, 2022 at 19:52
  • Is anyone else shocked by how reasonable this is? Lots of credit-cards are higher. I suppose that since credit-cards cannot jail you for nonpayment, so they have to charge a risk premium.
    – Michael Lorton
    Mar 19, 2022 at 0:14
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    @MichaelLorton again, I believe the rate is annual, but is set per quarter and compounded daily
    – littleadv
    Mar 19, 2022 at 1:55

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