When Life Changes, Your IRS Payment Plan Can Too: Understanding Installment Agreement Modifications
Financial circumstances can shift unexpectedly, leaving taxpayers struggling to meet their IRS installment agreement obligations. Whether you’ve experienced job loss, medical emergencies, or other hardships, the good news is that taxpayers can modify most existing installment agreements using the Online Payment Agreement application, allowing you to adjust payment plans when your financial situation changes.
Why Taxpayers Need to Modify Their Payment Plans
Life’s unpredictability often forces taxpayers to reconsider their payment arrangements. In 2023, over 60% of Americans reported living paycheck to paycheck, making unexpected expenses even harder to manage. Common reasons for seeking modifications include:
- Job loss or reduced income
- Medical emergencies and unexpected healthcare costs
- Divorce or family changes
- Business downturns
- Retirement with reduced income
- New tax debt from subsequent years
Recent studies estimate that about 36 percent of taxpayers who entered into streamlined installment agreements through the IRS’s Automated Collection System in fiscal year 2024 were at potential risk of economic hardship, potentially unable to meet their reasonable basic living expenses.
What Changes Can You Make Online?
The IRS has made it increasingly convenient for taxpayers to modify their agreements. To modify your installment agreement, call the IRS at (800) 829-1040 or log into your IRS online account to change your agreement. Through the online portal, you can make several key modifications:
- Payment Amount: As long as the monthly payments are enough to pay off the debt within 10 years or by the collection statute expiration date if sooner, you can modify the amount online
- Payment Date: You can select any due date from the 1st to the 28th of the month
- Banking Details: Change account information for direct debit arrangements
- Payment Method: Convert to or from direct debit arrangements
Understanding the Limitations and Requirements
While modifications are often possible, there are important constraints to understand. You can only make changes online if your modifications still meet the basic requirements of your installment agreement – in short, that means, owing under $50,000 and being able to pay off the balance by the collection expiration date.
For more significant changes, additional documentation may be required. If the new payment you want to make does not meet those conditions, you may still be able to request changes online, but you will be prompted to complete a collection information statement such as the 433-F or the more detailed 433-A for individuals or 433-B for businesses.
Costs and Fees for Modifications
Understanding the financial implications of modifications is crucial for taxpayers. The IRS charges taxpayers $10 to make changes to their payment plans online and $89 to request changes over the phone or through the mail. If you qualify as low-income, the fee is $10 for online changes and $43 for other changes, but if you meet certain criteria, the IRS may waive these amounts.
When to Act Quickly
Timing is critical when facing financial difficulties. If you can no longer keep up with your existing installment agreement, be proactive about requesting modifications online or by calling the IRS. If you don’t and your plan goes into default, you will incur penalties, and the IRS has the right to demand the balance in full and pursue involuntary collections against you.
If you default on your payment plan, the IRS generally gives you 30 days to get back into good standing. For instance, if you miss a monthly payment, you will typically receive a notice in the mail, but as long as you pay within 30 days, you will be able to continue making payments.
Alternative Solutions When Modifications Aren’t Enough
Sometimes, even modified payment plans aren’t sufficient for taxpayers facing severe financial hardship. In these situations, several alternatives exist:
Currently Not Collectible (CNC) Status: If you cannot afford to pay at least $25 per month and you don’t have any assets that you could liquidate to pay your taxes, the IRS may be willing to mark your account as currently not collectible (CNC).
Offer in Compromise: An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability or doing so creates a financial hardship.
Partial Payment Installment Agreement: If you cannot afford to pay the balance off by the date the debt expires, the IRS may consider allowing you to set up a Partial Payment Installment Agreement (PPIA). With a PPIA, you make monthly payments based on the details on your collection information statement.
The Importance of Professional Guidance
Navigating IRS installment agreement modifications can be complex, especially when dealing with financial hardship. Professional tax resolution services can provide invaluable assistance in these situations. Companies like all county tax resolution, which serves clients in New York, Pennsylvania, and nationwide, specialize in helping taxpayers resolve their tax obligations through various means, including installment agreement modifications, offers in compromise, and other collection alternatives.
Professional assistance becomes particularly valuable when dealing with complex financial situations, multiple tax years, or when the IRS has rejected initial modification requests. If the IRS rejects your requests for changes, they will send you a notice that generally gives you 30 days to appeal. Contact the IRS by the deadline to enter your appeal. During the appeal, you will be able to make new arguments to support your justification for the modification.
Looking Forward: Preventing Future Issues
Once you’ve successfully modified your installment agreement, it’s important to take steps to prevent future complications. Incurring new tax debt is one of the biggest reasons people need to make changes to an installment agreement, and it’s also one of the biggest reasons people default. If applicable, review your W4 and your spouse’s W4s to avoid incurring new tax debt. Ensure you complete them accurately and fill out the sections on second jobs and freelance income. That will ensure that your employer withholds the correct amount and you don’t face a tax bill when you file. If you work for yourself, make sure that you pay your quarterly estimated tax bills.
Remember, if your ability to pay has changed and you are unable to make payments on your installment agreement, you have several options available. Call the IRS immediately at 800-829-1040. Options could include reducing the monthly payment to reflect your current financial condition.
IRS installment agreement modifications provide crucial flexibility for taxpayers facing changing financial circumstances. By understanding your options, acting promptly when difficulties arise, and seeking professional guidance when needed, you can successfully navigate these challenges and maintain compliance with your tax obligations while protecting your financial well-being.