Can I Modify My IRS Payment Plan?

You’ve set up an IRS payment plan, feeling relieved that your tax debt is under control. You’re making your monthly payments on time, and everything seems manageable. But life happens. 

Maybe you lost your job, had an unexpected medical emergency, or faced a major financial setback. As a result, your once-affordable payments became a burden.

Sounds familiar? More than 4 million taxpayers are enrolled in IRS installment agreements, and many of them face financial changes that make sticking to the original terms difficult. The good news? The IRS allows modifications to your payment plan under certain conditions.

Modifying an existing payment plan isn’t always easy, but with the right approach, you can adjust your agreement without risking penalties or default. 

Let’s break it down.

Why Some Taxpayers Need to Modify Their IRS Installment Agreement

Life is unpredictable, and financial stability isn’t always guaranteed. For various reasons, you may struggle to stick to the original agreement. These reasons include:

• Job loss or reduction in income
• Unexpected medical emergencies or high healthcare costs
• Change in marital status
• Business downturn
• New tax debt added to an existing agreement
  

In 2023, over 60% of Americans reported living paycheck to paycheck, making unexpected expenses even harder to manage. 

Types of IRS Payment Plan Modifications

Here are three common ways to modify your agreement. 

Changing Your Monthly Payment Amount

You may be able to reduce your monthly payments. Conversely, if your financial situation improves, increasing your payment can help you pay off debt faster and reduce interest. The IRS considers factors like income, expenses, and overall ability to pay before approving any changes.

Requesting a Temporary Suspension of Payments

If you are facing short-term financial hardship, such as a job loss or medical emergency, you might qualify for a temporary delay in collections. The IRS may pause payments until your situation improves, though interest and penalties will continue to accrue.

Important Note: A suspension is not automatic. You’ll need to provide financial proof, and the IRS will determine whether you qualify.

Extending the Payment Period

For those who need more time, the IRS may extend your installment agreement. This could lower your monthly payments by spreading the balance over a longer period. However, an extended plan means more interest and penalties over time, so it’s important to weigh the long-term costs.

How to Modify Your IRS Installment Agreement (Step-by-Step Guide)

Option 1: Modify Your IRS Payment Plan Online (Best for Simplicity)

The IRS Online Payment Agreement is the fastest way to adjust your installment plan. It allows you to:

• Lower or increase your monthly payments
• Change your payment due date
• Reinstate a defaulted agreement (if eligible)

Who Qualifies to Request Changes?

• You owe less than $50,000 in total tax debt (including penalties and interest).
• You are up-to-date on current tax filings.
• You have an active installment agreement.

How to Use the IRS Online Payment Agreement Tool

1. Visit the IRS website and choose either an individual or business payment plan.
2. Log in with your information.
3. Update your payment terms.
4. Review and submit your request.

If approved, your new terms take effect within 30 days.

Option 2: Modify Your Payment Plan by Phone (Best for Complex Cases)

If your situation is more complicated, such as adding new tax debt to an existing plan, calling the IRS may be your best option.

IRS Contact Information:

• For individuals: 1-800-829-1040
• For businesses: 1-800-829-4933
• For installment agreements: 1-800-829-1040

What to Have Ready Before Calling

To avoid long hold times, gather the following before dialing:

• Your Social Security Number (or EIN for businesses)
• Your most recent tax return
• Details of your current installment plan
• Your income and expense details (if requesting a lower payment)

Call early in the morning or mid-week to reduce wait times.

Option 3: Modify Your IRS Installment Agreement by Mail (For Official Requests)

For formal requests or if you are ineligible for online changes, you can submit Form 9465 (Installment Agreement Request) by mail.

How to Submit Form 9465

1. Download and complete Form 9465 from the IRS website.
2. Include supporting documents (such as proof of financial hardship if requesting a lower payment).
3. Mail the form to the correct IRS address listed on the form instructions.

Up to 30–60 days (slower than online and phone options).

Option 4: Work with a Tax Professional (Best for Negotiating Lower Payments)

If you have a large tax balance or need help with complex tax laws, a tax relief service or enrolled agent can negotiate for you.

When Hiring a Tax Professional Makes Sense:

• You are unable to afford your payments due to financial hardship.
• Your request was denied by the IRS.
• You owe over $50,000 and need a more structured repayment plan.
• You need to explore alternative options like an Offer in Compromise.

At Precision Tax Relief, we know all the IRS rules and can advocate for lower monthly payments or even penalty relief. Contact us for free initial consultation.

What Happens If You Owe More Than $50,000?

In this situation, modifying your plan can be more complicated. The IRS applies stricter rules for high-balance taxpayers, often requiring:

• A full financial disclosure using Form 433-F (Collection Information Statement).
• Automatic payments via direct debit (instead of mailing checks).
• Additional documentation proving financial hardship, such as bank statements, pay stubs, or expense reports.

How the IRS Decides Whether to Approve Your Modification

The IRS considers several factors before approving a payment plan modification:

• Your current payment history: If you’ve consistently made on-time payments, you have a better chance of approval.
• Your ability to pay: The IRS reviews your income, expenses, and assets to determine whether a payment adjustment is necessary.
• The total amount owed: Higher balances often require additional paperwork and stricter conditions.
• Compliance with tax filings: If you haven’t filed all required tax returns, the IRS will likely reject your request.

It’s important to be transparent and provide accurate financial information during the approval process.

What About Costs? Fees, Interests, and Penalties

Modifying your agreement can come with certain fees, and interest and penalties don’t stop accruing just because you are on a plan.

Are There Fees for Modifying an IRS Installment Agreement?

Yes, in some cases. If you’re requesting a change to your existing installment agreement, the IRS may charge a restructuring or reinstatement fee, depending on the type of modification. As of 2024, this fee can range from $10 to $89, with lower costs for those who qualify for low-income taxpayer relief.

If your plan was terminated due to missed payments, you may need to pay a reinstatement fee to restore it. However, if you’re only adjusting the amount or due date of your payments and your account remains in good standing, the modification may not come with an additional charge.

How Penalties and Interest Continue to Accrue

Even if you’re on an installment plan, the IRS still continues charging interest and late payment penalties on your remaining balance. Here’s what that means for you:

• Interest Accumulation: As of January 1, 2025, the IRS charges 7% annual interest on unpaid taxes, compounded daily. 
• Late Payment Penalties: A 0.5% monthly penalty applies to unpaid taxes, up to a 25% maximum. 
• Compounding Costs: Daily compounding can cause balances to grow quickly; prompt payment, even in installments, can reduce total costs.

Can Penalties Be Reduced or Removed?

In some cases, yes. If you’ve been charged penalties but have a valid reason for missing payments, you may be able to request penalty abatement. The IRS offers relief under specific conditions:

• First-Time Penalty Abatement: If you’ve filed on time and haven’t had penalties in the past three years, you may qualify for a one-time waiver.
• Reasonable Cause Relief: If you can prove that serious circumstances (such as a medical emergency, natural disaster, or job loss) prevented you from making timely payments, the IRS may remove some or all penalties.
• Statutory Exceptions: If an IRS error caused your penalties, you can dispute them with supporting documentation.

However, interest on unpaid taxes cannot be removed unless the underlying tax liability itself is reduced.

Common Mistakes to Avoid When Modifying Your Payment Plan

Many taxpayers miss the chance to modify because of critical errors. Consequently, they face delays, higher costs, or outright denial. 

1. Missing payments before requesting a modification: Stopping payments before approval can default your plan, leading to penalties or enforcement actions like wage garnishments.
   
   Tip: Keep making minimum payments until your modification is approved. If struggling, consider Currently Not Collectible (CNC) status.
   
2. Providing incorrect or incomplete financial information: Errors in reported income, expenses, or assets can cause delays or rejections. The IRS verifies details against national and local standards.
   
   Tip: Double-check financial documents or consult a tax professional to ensure accuracy.
   
3. Overlooking alternative solutions: Modifying your plan isn’t always the best option. You may qualify for:

• A temporary delay on collections (hardship status).
• An Offer in Compromise (settling for less than owed).
• Penalty abatement (reducing late fees).

Tip: Explore all IRS relief programs before modifying your plan to find the best solution.

How Precision Tax Can Help

Remember, you don’t have to navigate IRS negotiations alone. At Precision Tax Relief, we understand IRS rules and can negotiate lower monthly payments or penalty relief. To avoid financial strain, act early and get help from professional support. Contact us for free initial consultation.