The IRS recently introduced a significant change to its payment plans, offering a lifeline to taxpayers with debt under $50,000. This new “Simple” Payment Plan allows you to repay your tax debt over 10 years.
If you are staring down a stressful tax bill, this plan could be the solution you need.
What is the New IRS Simple Payment Plan?
The IRS is not known for making things easy, so it is fair to be skeptical of anything they label as “simple.” In this case, however, the term refers to a more streamlined process with significantly better terms for taxpayers who qualify. It is a formal Installment Agreement designed to be more accessible, with less paperwork and more generous repayment terms than many previous options.
Up to $50,000 in Tax Debt, Paid Over a Decade
The Simple Payment Plan lets you pay off a total tax debt of up to $50,000—including penalties and interest—over a 10-year (120-month) period. This extended timeframe provides crucial breathing room, allowing you to manage your finances without giving up daily necessities.
The Biggest Change: How 10 Years Provides Critical Cash Flow Relief
Previously, the most accessible payment plan required taxpayers to pay off their balance within 72 months (6 years). While helpful, this shorter timeframe often resulted in monthly payments that were too high for many family and business budgets.
Look at a clear example:
- Imagine you owe $40,000 to the IRS.
- Under the old 72-month plan, the principal portion of your monthly payment would be around $555, but the total payment would be higher once accruing interest and penalties are included.
- Under the new 10-year (120-month) plan, that same debt would have a principal payment of about $333 per month, plus an additional amount to cover accruing interest and penalties.
Who This Plan Is Designed For: A Focus on Individuals, Sole Proprietors, and Freelancers
This plan is specifically for individual taxpayers. This includes:
- W-2 employees with a large tax bill.
- Freelancers, gig workers, and independent contractors.
- Small business owners who file taxes as a sole proprietorship or a single-member LLC.
A Clear Checklist to See if You Qualify
Before diving into forms, let us review the requirements.
The Financial Threshold: Understanding the $50,000 Rule (Tax, Penalties, and Interest Combined)
To qualify for this specific plan, your total balance must be under $50,000 at the time you set up the agreement. This is not just the original tax you owed; it is the total of the tax, any penalties assessed, and the interest that has accrued.
The Filing Requirement: What “Being Up-to-Date” on Your Tax Returns Really Means
This is a non-negotiable step for any IRS agreement. To qualify, you must have filed all required tax returns from previous years. You do not have to have paid the tax for those years, but the returns themselves must be on file with the IRS. If you have unfiled returns, addressing those is your absolute first priority.
What If You Owe More Than $50,000? Don’t Panic, You Have Other Options
If your debt is over the $50,000 threshold, do not lose hope. You are not out of options. The IRS offers other types of installment agreements for higher debt amounts. Other solutions, like an Offer in Compromise (OIC), may also be available depending on your financial situation. These paths are more complex and require a deeper analysis of your finances, which is where the guidance of an experienced tax professional becomes essential.
What If Your Books Are a Mess? A Practical First Step for Business Owners
For many freelancers and small business owners, the idea of getting “up-to-date” is the most stressful part. Here is a practical first step:
- Avoid trying to tackle everything at once. Pick the most recent unfiled year and focus only on that.
- Log in to your bank’s website and download all the monthly statements for your business account for that one year. This is your foundation.
- No need for an award-winning accounting system. You need to categorize your income and expenses well enough to file an accurate return. The goal is to move forward, not create a perfect historical record.
How to Prepare and Apply for the 10-Year Payment Plan
This step-by-step plan puts you back in the driver’s seat.
Step 1: Gathering Your Documents
Before you contact the IRS, have your information ready. This includes your most recent IRS notice (which has your current balance), your Social Security Number or Individual Taxpayer ID Number (ITIN), and your bank account information if you plan to set up direct debit.
Step 2: Applying Online vs. Mailing IRS Form 9465
You have two primary ways to apply:
- Online Payment Agreement (OPA): This is the fastest and easiest method. You can access it through the IRS website. If you meet the criteria, you can receive immediate confirmation that your plan is approved.
- Form 9465, Installment Agreement Request: If you prefer to apply by mail or are filing it with your current year’s tax return, you can use this form.
Step 3: Setting Up Payments
The IRS strongly encourages setting up payments via direct debit from your bank account. Setting up direct debit results in a lower setup fee and helps prevent missed payments by automating the process, provided sufficient funds are in the account.
Why a Professional Review Before You Submit is Critical
While the application may seem straightforward, any error (an incorrect debt calculation, a misunderstanding of your filing status, or a simple mistake on the form) can lead to rejection. A rejection does not just mean you have to start over; it means you remain in the IRS’s active collection system, exposed to potential bank levies or wage garnishments. Our team works relentlessly to ensure our clients’ applications are accurate and complete. We file them correctly the first time to secure that protection immediately.
We will listen to your story, review your options, and help you understand the best path forward, with no obligation. Contact us now.
Frequently Asked Questions
What is the 10-year rule for IRS debt?
This question has two parts. The “10-year rule” for this new plan refers to the repayment period. Separately, the IRS generally has 10 years from the date of a tax assessment to collect the debt, a period known as the Collection Statute Expiration Date (CSED). Your payment plan must be structured to pay off the debt before the CSED expires.
What is the longest-term payment plan for the IRS?
For debts under $50,000, the new 10-year “Simple” plan offers the longest available term for most individual taxpayers. However, the actual maximum term is limited by the IRS’s 10-year Collection Statute Expiration Date (CSED), which means your agreement must pay off the debt before that statute expires. For larger debts, other plans may be available but typically require detailed financial disclosures and may still be constrained by the same CSED rule.
Do I need a specific IRS payment plan form to apply?
Yes. If you apply by mail, you will use Form 9465, Installment Agreement Request. If you apply online, you will go through the IRS’s Online Payment Agreement portal, which is an electronic version of this process.
How is this "Simple Plan" different from other IRS payment plans?
It differs primarily in its accessibility and terms. Compared to plans for higher debt, it requires little to no financial disclosure (you do not have to submit a detailed budget of your personal living expenses). Compared to older streamlined plans, its repayment term is significantly longer (up to 10 years vs. 6 years), but the full term is only available if the IRS’s 10-year Collection Statute Expiration Date (CSED) has not already passed or is near expiration.
Do interest and penalties stop accruing?
No. An installment agreement allows you to pay your debt over time, but it is not a forgiveness program. Interest and late-payment penalties will continue to accrue on your unpaid balance until it is paid in full. However, setting up a plan may reduce the failure-to-pay penalty rate.
What happens if you miss a payment?
If you miss a payment or cannot pay, your agreement could go into default. This is a serious event that puts you right back into the active collections process. If your financial situation changes, and you can no longer afford your payment, contact the IRS or a tax professional immediately to explore your options before you default.
Can the IRS still place a lien on your property?
Possibly. The IRS generally does not file a Notice of Federal Tax Lien for debts under $25,000 if the taxpayer pays by direct debit. However, for debts between $25,000 and $50,000, the IRS reserves the right to file a lien. A tax lien is a public claim to your property as security for the debt and can severely damage your credit.
