If you owe tax liability but are unable to pay by the due date, it may be beneficial for you to enter into an installment agreement with the IRS. An installment agreement is essentially a detailed payment plan by which the taxpayer agrees to pay his or her tax liability in set amounts each month. The length of the installment period and the amount of the installment payments is based on the amount owed and the taxpayer’s ability to pay the amount within the time the IRS can legally collect from the taxpayer.
There are costs to entering into an installment agreement. Interest and penalties on the unpaid portion of the tax liability continue to accrue. Additionally, the IRS charges a user fee to set up the agreement which is currently $52 for direct debit agreements and $105 for non-direct debit agreements.
Although the IRS could still file a Notice of Federal Tax Lien if you enter into an installment agreement, the IRS cannot take any collection actions while the IRS considers your installment agreement, while the installment agreement is in effect, for 30 days after the IRS rejects your request for an installment agreement, or for any period while you appeal the IRS’ rejection of your proposed installment agreement.