What happens if you can’t afford the IRS monthly payment? If your IRS installment agreement requires more than you can reasonably pay, you may face missed payments, default, and renewed IRS collection enforcement. However, depending on your financial circumstances, different payment terms or other tax relief options may be available.
An IRS payment plan is intended to provide a manageable way to address outstanding federal taxes. But an agreement that leaves a taxpayer unable to pay essential living expenses may create additional financial problems.
For taxpayers with substantial IRS debt, the consequences can be especially serious. A defaulted installment agreement may eventually expose bank accounts, wages, and other assets to collection action.
Being unable to afford an IRS monthly payment does not necessarily mean you have no options. The appropriate resolution depends on your financial circumstances, the amount owed, and the status of IRS collection proceedings.
At GMD Tax Law, I represent individuals and business owners dealing with IRS collection problems, including installment agreements that are unaffordable or at risk of default.
Speak directly with a tax attorney about your IRS payment problem.
Why Might an IRS Monthly Payment Be Unaffordable?
There are several reasons an IRS installment agreement may become difficult or impossible to maintain.
Some taxpayers agree to payments they initially believe they can afford, only to discover that the arrangement creates significant financial pressure.
Others experience changes in their financial circumstances after the agreement has already been approved.
Common situations include:
- Loss of employment or reduced income.
- Increased housing or essential living expenses.
- Unexpected medical or family expenses.
- Business revenue declines.
- Changes in household circumstances.
- Additional financial obligations.
- IRS payment terms that exceed the taxpayer’s available monthly income.
In financially evaluated cases, the IRS may calculate a taxpayer’s ability to pay using collection financial standards and other applicable rules.
As a result, the IRS’s determination of an affordable payment may differ from what the taxpayer believes can realistically be paid.
This difference can become a significant issue when negotiating or maintaining an installment agreement.
What Happens If You Cannot Make Your IRS Installment Agreement Payment?
Missing an IRS installment agreement payment can place the agreement at risk of default.
However, one missed payment does not necessarily mean the IRS can immediately levy a taxpayer’s bank account or wages without regard to applicable legal requirements.
Federal law establishes procedures governing installment agreement defaults, proposed terminations, and certain collection actions.
Depending on the circumstances, the IRS may issue a notice proposing to terminate the agreement.
If the agreement is ultimately terminated, the taxpayer may lose important protections against IRS levy enforcement.
The consequences depend on the status of the agreement, the taxpayer’s compliance history, and whether the IRS has already initiated collection proceedings.
Can the IRS Terminate an Installment Agreement Because You Cannot Afford It?
Yes. The IRS may terminate an installment agreement when the taxpayer fails to satisfy applicable payment or compliance requirements.
Internal Revenue Code Section 6159 provides the statutory framework for installment agreements, including circumstances involving modification and termination.
Potential reasons for default or termination include:
- Failure to make required payments.
- Failure to file required tax returns.
- Failure to pay new tax liabilities when due.
- Failure to provide required financial information.
- Other circumstances that justify termination under applicable law.
One notice commonly associated with proposed installment agreement termination is IRS Notice CP523.
Receiving a proposed termination notice is serious because it may indicate that the IRS intends to end the payment arrangement.
Taxpayers may have applicable notice and appeal rights. However, those protections do not guarantee that the IRS will continue an agreement on its existing terms.
The central concern is whether the taxpayer can maintain an arrangement that satisfies IRS requirements without creating repeated defaults.
Can the IRS Lower Your Monthly Installment Agreement Payment?
In some circumstances, the IRS may agree to modify an existing installment agreement.
A reduction in income, increase in necessary expenses, or other material change in financial circumstances may affect the taxpayer’s ability to pay.
However, the IRS does not automatically reduce a monthly payment simply because the taxpayer considers it too high.
Depending on the type of agreement, the IRS may examine income, allowable living expenses, assets, and other financial information before determining whether different payment terms are appropriate.
Some taxpayers may qualify for a lower payment under a different installment agreement arrangement.
Others may face questions concerning available equity, financial resources, or whether their claimed expenses are allowable under IRS collection standards.
For taxpayers with substantial balances, the financial evaluation can materially affect the proposed payment.
An installment agreement modification should be evaluated in the context of the taxpayer’s complete financial circumstances and remaining IRS collection period.
How Does the IRS Decide What You Can Afford to Pay?
For installment agreements requiring financial analysis, the IRS may evaluate the taxpayer’s ability to make monthly payments based on income, expenses, assets, and other relevant circumstances.
The IRS may consider:
- Employment and self-employment income.
- Household income where relevant.
- Housing and utility expenses.
- Transportation expenses.
- Food, clothing, and other living expenses.
- Health care costs.
- Bank accounts and investments.
- Real estate and available equity.
- Business income, expenses, and assets.
- The remaining time available for IRS collection.
The IRS uses national and local collection financial standards when evaluating certain living expenses.
Consequently, the amount a taxpayer actually spends may not always be the amount the IRS recognizes for collection purposes.
Some expenses may require consideration of the taxpayer’s particular circumstances.
For example, a taxpayer with unusually high necessary expenses may present different financial issues from someone whose expenses substantially exceed applicable collection standards for discretionary reasons.
These distinctions can become particularly important when the IRS proposes a monthly payment that the taxpayer believes is unaffordable.
What Is a Partial Payment Installment Agreement?
A Partial Payment Installment Agreement (PPIA) may be available when a taxpayer has some ability to make monthly payments but cannot fully satisfy the outstanding tax liability before the applicable IRS collection period expires.
Unlike an agreement designed to pay the entire balance, a Partial Payment Installment Agreement may permit payments that are not expected to satisfy the full liability within the remaining collection period.
These agreements generally require a detailed financial evaluation.
The IRS may also review the taxpayer’s financial circumstances periodically and consider modifying the arrangement if the taxpayer’s ability to pay changes.
A Partial Payment Installment Agreement does not immediately forgive the unpaid tax debt.
However, it may be an important collection alternative for taxpayers who cannot afford the payments necessary to fully satisfy their liability.
Eligibility depends on the taxpayer’s financial condition, available assets, and applicable IRS collection requirements.
What If You Cannot Afford Any IRS Monthly Payment?
Some taxpayers are unable to make any meaningful monthly payment without compromising necessary living expenses.
In certain circumstances, the IRS may determine that collection would create financial hardship and classify the account as Currently Not Collectible (CNC).
Currently Not Collectible status generally means the IRS temporarily suspends active collection efforts because the taxpayer lacks the present ability to pay under applicable standards.
However, CNC status does not eliminate the underlying tax liability.
Interest and applicable penalties generally continue to accrue, and federal tax liens may remain in place.
The IRS may also reconsider the taxpayer’s collection status if financial circumstances improve.
For individuals experiencing serious financial hardship, CNC status may warrant consideration as an alternative to an unaffordable installment agreement.
Whether it is appropriate depends on the taxpayer’s financial circumstances and collection status.
Could an Offer in Compromise Be Better Than an Unaffordable Payment Plan?
In some cases, a taxpayer who cannot afford an IRS installment agreement may qualify for consideration of an Offer in Compromise.
An Offer in Compromise may allow the IRS to settle a qualifying federal tax liability for less than the full amount owed.
However, inability to afford a proposed installment payment does not automatically establish eligibility for an offer.
The IRS evaluates specific legal and financial requirements, including the taxpayer’s income, allowable expenses, assets, and future earning potential in offers based on doubt as to collectibility.
Some taxpayers who cannot afford a high monthly payment may nevertheless have sufficient assets or collection potential to make an Offer in Compromise inappropriate.
Others may have financial circumstances that justify evaluating a settlement.
The appropriate choice depends on the facts, not simply on whether the taxpayer prefers a lower payment or a reduced balance.
For more information about federal collection alternatives, visit my IRS Tax Relief service page.
Can the IRS Garnish Your Wages If Your Payment Plan Defaults?
Potentially, yes.
An approved installment agreement generally provides protection against new IRS levy action for taxes covered by the agreement while it remains in effect, subject to applicable exceptions.
However, if an agreement is terminated and applicable collection restrictions no longer apply, the IRS may pursue authorized enforcement action.
This may include levies against wages, bank accounts, or other property.
Wage levies can create significant financial pressure because they may affect recurring earnings.
For taxpayers already struggling to meet essential expenses, the consequences can be particularly serious.
The IRS must comply with applicable notice, appeal, and levy requirements.
Nevertheless, taxpayers should not assume that a previously approved installment agreement will provide permanent protection after it has been terminated.
Can the IRS Levy Your Bank Account After an Installment Agreement Default?
Yes, when the IRS has legal authority to levy and applicable restrictions have expired.
A bank levy can result in funds being taken from an account and applied toward the outstanding federal tax liability.
For individuals, this may affect money needed for housing, utilities, and ordinary living expenses.
For business owners, a bank levy may interfere with payroll, vendor payments, and ongoing operations.
An existing installment agreement may affect the IRS’s ability to levy, but the legal status of that agreement is critical.
When an agreement is in default or has been terminated, the taxpayer’s exposure to collection enforcement may change.
Learn more about IRS Bank Levy Help and representation involving federal tax collection.
Does an Unaffordable IRS Payment Plan Affect the Collection Statute?
The IRS generally has 10 years from the date of assessment to collect a federal tax liability under Internal Revenue Code Section 6502, subject to applicable suspensions and extensions.
This period is commonly referred to as the Collection Statute Expiration Date (CSED).
The remaining collection period can be important when evaluating installment agreement terms.
For example, an arrangement intended to pay the liability in full may involve different considerations from a Partial Payment Installment Agreement.
An approved installment agreement does not ordinarily suspend the IRS collection period merely because payments are being made.
However, certain pending installment agreement requests, appeals, and other legally specified events may suspend the collection period.
When a taxpayer owes balances from multiple tax years, the applicable collection expiration dates may differ.
These issues can materially affect the evaluation of an appropriate long-term collection resolution.
What If You Owe the IRS More Than $50,000 and Cannot Afford the Payments?
Taxpayers with substantial federal tax liabilities may face more complicated installment agreement considerations.
Owing more than $50,000 does not automatically prevent the IRS from approving a payment arrangement.
However, some cases may require a detailed financial evaluation, particularly when the taxpayer does not qualify for simplified payment-plan procedures.
The IRS may examine income, expenses, available assets, and the remaining collection period.
Large-balance cases may also involve:
- Federal tax liens.
- Assigned IRS Revenue Officers.
- Existing or threatened levies.
- Multiple tax years.
- Substantial real estate equity.
- Business ownership or self-employment income.
- Prior installment agreement defaults.
In these circumstances, the terms of an installment agreement may have consequences beyond the monthly payment itself.
A careful evaluation of available collection alternatives may be particularly important.
What If an IRS Revenue Officer Is Demanding Payments You Cannot Afford?
Some IRS collection matters are assigned to Revenue Officers, particularly when the taxpayer owes substantial balances or the case involves business employment taxes.
A Revenue Officer may investigate the taxpayer’s financial circumstances, request information, evaluate collection alternatives, and pursue enforcement when authorized.
When a taxpayer believes the proposed payment is unaffordable, the disagreement may involve income calculations, allowable expenses, available assets, or other collection issues.
Revenue Officer cases can also involve existing federal tax liens, collection deadlines, and potential levy enforcement.
For taxpayers facing direct IRS collection pressure, the issue is not simply obtaining a lower payment. It is determining an appropriate resolution while accounting for the risks of enforcement.
Can Business Owners Get Relief From Unaffordable IRS Payments?
Business owners may face particular difficulties when installment agreement payments compete with payroll, operating expenses, and current tax obligations.
Business revenue may fluctuate, making a fixed monthly payment difficult to maintain.
Employment tax liabilities can create additional concerns because the IRS may investigate potential personal responsibility for unpaid trust fund taxes.
Depending on the circumstances, business owners or other responsible individuals may face a Trust Fund Recovery Penalty investigation.
An installment agreement involving the business does not necessarily eliminate potential personal liability for unpaid trust fund taxes.
Moreover, the IRS generally expects businesses to remain compliant with current employment tax deposit and filing requirements.
For these reasons, an unaffordable business installment agreement may require evaluation of both the business’s financial condition and related personal collection exposure.
Should You Agree to an IRS Monthly Payment You Cannot Sustain?
An installment agreement should not be evaluated solely on whether the IRS is willing to approve it.
The arrangement should also be considered in light of the taxpayer’s financial circumstances, future obligations, and risk of default.
A payment that cannot be maintained may eventually lead to termination of the agreement and renewed collection enforcement.
However, the IRS is not required to accept a payment amount simply because the taxpayer prefers it.
Different types of agreements and collection alternatives have different eligibility requirements.
The objective is to pursue a legally supportable arrangement that addresses the tax liability while accounting for the taxpayer’s actual financial circumstances.
For additional background, read my earlier articles:
How GMD Tax Law Helps With Unaffordable IRS Installment Agreements
GMD Tax Law represents individuals and business owners dealing with federal tax collection matters, including unaffordable installment agreements, substantial IRS balances, and Revenue Officer investigations.
I am Gregory M. Dzialo, Esq., LL.M. in Tax, and I work directly with clients to evaluate their IRS collection problems and available resolution options.
Depending on the circumstances, my representation may include:
- Reviewing outstanding IRS tax liabilities and collection status.
- Evaluating existing installment agreement terms.
- Analyzing financial circumstances relevant to the taxpayer’s ability to pay.
- Communicating with IRS collection personnel and Revenue Officers.
- Evaluating whether different installment agreement terms may be appropriate.
- Considering Partial Payment Installment Agreements or other available collection alternatives.
- Addressing existing or threatened collection enforcement.
- Evaluating related filing and compliance issues within the scope of representation.
At GMD Tax Law, clients work directly with an attorney rather than a sales representative or non-attorney case manager.
Learn more about my IRS Installment Agreement Attorney services and IRS Tax Relief representation.
Frequently Asked Questions About Unaffordable IRS Monthly Payments
What happens if I can’t afford my IRS monthly payment?
If you cannot afford your installment agreement payment, the agreement may become vulnerable to default and termination. Depending on your circumstances, modified payment terms or another collection alternative may be available.
Can the IRS lower my monthly installment agreement payment?
Potentially. The IRS may consider modifying an agreement when the taxpayer’s circumstances justify different terms. Financial information and applicable collection standards may affect the decision.
Will the IRS cancel my payment plan if I miss one payment?
A missed payment can place an agreement at risk, but termination is subject to applicable legal and administrative procedures. The consequences depend on the circumstances and the status of the agreement.
Can the IRS garnish my wages if my installment agreement defaults?
Yes, when the IRS has authority to levy and applicable collection restrictions have expired. Termination of an installment agreement may expose the taxpayer to renewed collection enforcement.
What is the lowest monthly payment the IRS will accept?
There is no universal minimum monthly payment that applies to every installment agreement. Acceptable terms depend on the type of agreement, the tax liability, financial circumstances, and applicable IRS requirements.
Can I qualify for Currently Not Collectible status instead of making payments?
Possibly. Currently Not Collectible status may be appropriate when the taxpayer cannot make payments without compromising necessary living expenses under applicable IRS standards.
Can I settle my IRS debt if I cannot afford monthly payments?
An Offer in Compromise may be available to qualifying taxpayers, but inability to afford a proposed installment payment does not automatically establish eligibility.
Can the IRS require me to use savings or assets to pay my tax debt?
In financially evaluated cases, the IRS may consider available assets and equity when determining collection potential and appropriate payment terms.
Does an IRS installment agreement stop interest and penalties?
No. Interest generally continues to accrue, and applicable penalties may continue while an installment agreement is in effect.
Can’t Afford Your IRS Monthly Payment? Speak With a Tax Attorney.
If your IRS installment agreement payment is more than you can reasonably afford, ignoring the problem may place you at risk of default and renewed collection enforcement.
Depending on your circumstances, different installment agreement terms, a Partial Payment Installment Agreement, Currently Not Collectible status, or another collection alternative may warrant consideration.
However, eligibility depends on your financial circumstances, outstanding liabilities, and applicable IRS requirements.
GMD Tax Law represents individuals and business owners facing substantial IRS tax debt, unaffordable payment arrangements, bank levies, wage levies, and Revenue Officer investigations.
Contact GMD Tax Law to discuss your IRS installment agreement problem.
Call 617-237-6347.
