If you cannot pay the full amount you owe with your tax return (or on a notice the IRS sends to you), you can ask to make monthly installment payments using IRS Form 9465 - Installment Agreement Request. You will be charged interest (and possibly penalties) and a fee ($52-$105 depending on payment method) if your request is approved.

If you owe less than $10,000 in taxes, you are legally entitled to an installment agreement if you meet certain conditions, listed below.  Use IRS Form 9465 to request an installment agreement and attach it to your return.  Since interest and penalties will be assessed on the amount that is left unpaid, you should pay as much tax as you can when you mail in your tax return.  Use form 9465 to report the amount that you can pay each month.  Generally, you can have up to 60 months to pay, including interest and penalties.

Once the IRS receives your Form 9465, they will contact you (usually within about a month) to tell you whether your request has been approved or denied and tell you how to pay the processing fee.  The fee is $105 if you plan to pay by check, money order, credit card, or payroll deduction and $52 if you plan to use electronic funds withdrawal.  If you choose this last method, you can provide your checking account and routing details on form 9465 as well.

Guaranteed installment agreement

Your request for an installment agreement cannot be turned down if the tax you owe is not more than $10,000 and all three of the following apply.

• During the past 5 tax years, you (and your spouse if filing a joint return) have timely filed all income tax returns and paid any income tax due, and have not entered into an installment agreement for payment of income tax.
• The IRS determines that you cannot pay the tax owed in full when it is due and you give the IRS any information needed to make that determination.
• You agree to pay the full amount you owe within 3 years and to comply with the tax laws while the agreement is in effect.

Remember to file your tax return on time even if you don’t have the money to pay your tax. The penalty for not filing your return is 5% of your tax liability a month up to a maximum of 25%.  Also note that even if you are approved for an installment agreement, You will also be charged interest and may be charged a late payment penalty on any tax not paid by its due date, typically April 15th.

The IRS cautions that you should not file form 9465 if you are currently making payments on an installment agreement or can pay your balance due in full within 120 days.  Instead, you should call the IRS at 1-800-829-1040.   If you are in bankruptcy or the IRS has accepted your offer-in-compromise, that phone number can also be used to get the number of your local IRS insolvency function for bankruptcy or technical support function for offer-in-compromise.

As tax rules change on a regular basis, speak to your tax advisor or the IRS before taking any specific action.