How to make a payment plan with the IRS

2025 update

Mar 20, 2025

Hello to the 4,817 hotties who subscribe to this newsletter! Thank you for being here.

We’re in the throes of tax season and so many of my clients — especially those of us who are self-employed — are stressing over taxes. I’ve witnessed people cut back on both basic essentials and little luxuries that make capitalism survivable just to pay off their tax debt.

If you’ve been reading this newsletter or following Queer & Trans Wealth on Instagram for a while, you’ll know that I’m a pleasure-forward financial coach. I do not believe in depriving oneself of groceries, monthly gender-affirming manicures, or a much-needed date night with your partner to get a break from your kids just to rush and pay off debt.

This philosophy applies to tax debt, too.

For anyone who needs to hear this: Paying taxes is incredibly unfair and emotionally loaded. Our government needs to hold billionaires to the same standards as the working and middle classes. Our tax dollars are being used to fund fascist regimes, world crises, and multiple genocides. We are being asked to take personal responsibility for systems that work against us, and it’s okay to feel emotional about that. It’s 100% okay to have procrastinated or to dissociate from the process if that’s what you have to do to get through it.

Solopreneurs and small business owners who will owe money to the IRS this tax season: I’m speaking directly to you. A lot of queer and trans folx decide to remain self-employed or to start their own businesses to get away from corporate and nonprofit environments, so I know a lot of people who read this newsletter are directly affected.

With their backs against the wall, some people charge tax debt on their credit card as a last resort. For the love of all things holy, I’m begging you: Please do not put your tax debt on a credit card.

Let me put this into perspective: The average credit card interest rate is 24.20% according to Lending Tree. A tax debt of $1,000 split up in $30 payments at an average interest rate of 24.20% would take 50 months (4 years and 2 months) to pay off, and you’d have to pay a total of $1,481 instead of the original $1,000 you owed.

In contrast, the IRS offers short-term and long-term payment plans with 4-8% interest. You can also negotiate years’ worth of tax debt into a smaller amount using an offer in compromise. In contrast, credit cards have interest rates that range from 18% to 30%, and there’s no option to negotiate that debt down to a manageable amount similar to an offer in compromise.

Instead of depriving yourself to pay off tax debt in a hurry, or putting your tax debt on a credit card, consider making a payment plan with the IRS instead.

💌 Coming soon: I’ll write about the difference between scarcity mindset and actual scarcity. I’ll also write about some anti-capitalist strategies to carry us through the Trump regime. Plus, I’ll be updating my guide on how to become a war tax resister. Make sure you’re subscribed so you can get these updates!

❤️‍🔥 We’re still accepting new group coaching clients! Here are more details about our six-month group, Budgeting for a World on Fire. Registration starts at $750, with payment plans available. If you're interested, reach out to Andrea at hello@queerandtranswealth.org.

What happens if I don’t pay my taxes on time?

The IRS requires taxpayers to pay what they owe by April 15, 2025. The IRS starts charging interest and penalties after that date. You can apply for an extension to get more time to file your taxes, but you still need to make estimated payments by April 15 to avoid interest and penalties.

Los Angeles Wildfire tax extension: Individuals and businesses affected by the Los Angeles Wildfires have until October 15, 2025 to file and pay taxes.

If you filed taxes using software like TurboTax or TaxAct, but haven’t paid the estimated amount that you owe, you’ll receive a letter from the IRS after April 15 that notifies you of how much you owe and how much interest and penalties you will be charged.

Types of payment plans

Short-term payment plans

Must be paid off in 180 days
Individuals who owe less than $100,000 in combined taxes, penalties and interest are eligible
No set-up and application fees
Interest rate: 4% per year, compounded daily
Late payment penalty: 0.5% per month, but the amount of penalties will not exceed 25% of your unpaid taxes
Only individuals are eligible for short-term business plans. Businesses are not eligible.

Long-term payment plans

Long-term payment plans last more than six months. There are two options:

Set up automatic monthly payments from your checking account. The IRS calls this a Direct Debit Installment Agreement (DDIA).
- $22 setup fee when you apply online
- $107 setup fee when you apply by phone, mail or in-person
Set up manual monthly payments through the Electronic Federal Tax Payment System (EFTPS), Direct Pay from your checking or savings account, or via check, money order, debit or credit card.
- $130 setup fee if you apply online
- $225 if you apply by phone, mail, or in person

For both short-term and long-term payment plans, set-up fees are waived for low-income taxpayers who are at or below 250% of the poverty line. See the US Department of Human and Health Services for the complete federal poverty guidelines.

Interest for both types of plans is 4% per year, compounded daily. You will also be charged 0.5% per month in penalties, but the amount charged in penalties will never exceed 25% of the unpaid taxes.

Businesses that owe more than $10,000 must pay via Direct Debit (automatic withdrawals).

Complete details about IRS payment plans can be found here. You can apply for a payment plan on IRS website as soon as your tax debt shows up on the IRS’ system.

Penalty relief

Penalties are waived for taxpayers who have not paid because of the following reasons:

Fires, natural disasters, or civil disturbances
Inability to get records
Death, serious illness or unavoidable absence of the taxpayer or immediate family
System issues that delayed a timely electronic filing payment

More details on this page.

Offers in compromise

An offer in compromise allows you to settle your tax debt for less than the amount that you owe. For example, if you haven’t filed your taxes in over 5 years and suddenly find yourself in $25,000 in tax debt, you can negotiate to pay what you can over the next 12 to 18 months.

The IRS considers your:

Ability to pay
Income
Expenses
Asset equity (ie, how much your house, retirement accounts, etc are worth)

You’re eligible to make an offer in compromise with the IRS if:

You filed all your required tax returns and made all your required estimated payments
You aren’t in an open bankruptcy proceeding
Have a valid extension for a current year return
Are an employer and made tax deposits for the current and past 2 quarters before you apply

You can use the IRS Offer in Compromise Pre-Qualifier Tool to see if you’re eligible.

Use Form 656-B to make an offer in compromise to reduce your tax debt.

At the time of this writing, Form 656-B and the accompanying booklet are not available on the IRS website. An Error 404: Page Not Found notice pops up. It could be an innocent error, but I also suspect this has to do with DOGE’s interference in federal agencies.

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