IRS Payment Plan

The most widely used method for paying an old IRS debt is the monthly installment agreement, or IA. If you owe $25,000 or less, you should be able to get an installment payment plan for 60 months just by asking for it. If you owe more than $25,000, you will have to negotiate with the IRS to get an installment plan.

You must be current on this year's tax returns. If IRS computers show that you haven't filed all past due tax returns, you will not be eligible for an IA. Likewise, if you are self-employed, you must be current on your quarterly estimated tax payments for the current year. Finally, if you have employees, you must be current on payroll tax deposits and Form 941 filings to get an IA.

But don't assume that a payment plan is your best option -- there are definite drawbacks. The biggest is that interest and penalties continue to accrue while you still owe. Combined with penalties, the interest rate is often 8% to 10% per year. It's possible to pay for years and owe more than when you started.