As April 15, 2025 approaches, many taxpayers face an uncomfortable reality: owing more in taxes than they can immediately pay. The IRS’s short-term payment plan offers a practical solution for those needing extra time to settle their tax debt.
A short-term payment plan allows taxpayers to spread their payments over 180 days (approximately six months). It is ideal for those expecting funds from a future commission, bonus, or asset sale. This arrangement has several advantages over other payment options, including minimal setup fees and lower overall costs compared to long-term payment plans.
Individuals must owe less than $100,000 in combined tax, penalties, and interest to qualify for a short-term payment plan. The application process is straightforward and can be completed online through the IRS website, by phone, or by mail using Form 9465. Online applications typically receive the fastest approval, often within minutes.
The costs associated with short-term payment plans are relatively modest. Individual taxpayers who apply online pay no setup fee, while those applying by phone, mail, or in person face a $35 setup fee. For businesses, the setup fee is $39 regardless of application method.
Interest and penalties continue to accrue until the balance is paid in full, currently at a rate of 8% annually (federal short-term rate plus 3%). However, these costs are generally lower than credit card interest rates or fees associated with other financing options.
To maximize the benefits of a short-term payment plan:
- Calculate your total liability, including estimated penalties and interest
- Determine a monthly payment amount that will clear the debt within 180 days
- Set up automatic payments to avoid missing deadlines
- Consider making larger payments when possible to reduce interest charges
- Keep all tax returns current during the payment period
For those filing their 2024 returns this April, the short-term payment plan offers a buffer through October 2025. This timeline allows taxpayers to align payments with anticipated income or adjust their withholding for the current tax year to prevent future shortfalls.
Taxpayers should apply for a payment plan before the filing deadline to avoid additional penalties and potential collection actions. The IRS typically becomes more accommodating when taxpayers proactively address their tax obligations rather than waiting for collection notices.
Remember that while a short-term payment plan provides breathing room, it’s not a permanent solution for chronic tax debt. Use this time to adjust tax withholding, estimated tax payments, or business practices to ensure adequate funds for future tax obligations.