Many young adults discover they owe taxes unexpectedly. This often happens due to freelance work or under-withholding on paychecks, especially when juggling multiple part-time jobs or contracts. It’s a common situation that doesn’t mean you did anything wrong, just that tax rules didn’t match how you earned your income. A tax professional can help you with an installment agreement to manage what you owe over time.
What Is an IRS Installment Agreement?
An IRS installment agreement is a monthly payment plan that lets you pay off tax debt within 72 months, which helps you avoid the financial strain of a lump-sum payment. It's available to individuals who owe less than $50,000 and are current with all required tax filings. The IRS considers your income, expenses and ability to pay when calculating monthly payments, making the plan more manageable than a standard loan.
Why People Consider a Personal Loan for Tax Debt
A personal loan gives you quick access to cash so you can pay the IRS in full, and at first glance, it feels like a straightforward fix. Many people see it as a clean way to handle tax debt by making one new payment instead of navigating IRS paperwork or setting up government accounts.
Banks and online lenders often push this option during tax season, making it seem like the fastest path to relief. But before adding a new financial obligation, a tax professional can help you with an installment agreement that works with your income and avoids credit checks.
IRS Payment Plan Vs. Personal Loan
Before choosing how to pay off tax debt, it helps to understand the real differences between using an IRS installment agreement and taking out a personal loan. The table below breaks down key factors like credit impact and flexibility so you can make the choice that fits your situation best.
Category | IRS Installment Agreement | Personal Loan |
Credit Check | Not required | Required |
Approval Speed | Same-day approval for most applicants | Varies by lender and can take hours to days |
Interest Rate | 7% plus penalties and daily compounding | Varies widely |
Payment Flexibility | Can adjust if income changes | Fixes payments with less flexibility |
Debt Management | Keeps debt within the IRS system | Adds new debt with a lender |
Credit impact | No reporting if payments are on time | Late or missed payments can damage credit |
Preferred payment method | Direct debit from a bank account to stay compliant | Monthly bank transfer or autopay |
Eligibility Requirements | Under $50,000 owed and all returns filed | Based on credit score, income and debt-to-income ratio |
Best for | Managing tax debt without adding new liabilities | Those with strong credit and a need for broader consolidation |
Why an IRS Installment Agreement Usually Wins
An IRS installment agreement keeps repayments inside the IRS system, so you’re not adding new lenders or increasing your overall debt load. That’s a major advantage, especially when 18- to 29-year-olds already carry an average of $19,962 in debt. It doesn’t touch your credit score, and the monthly payments are based on your income, so they stay affordable even if you’re juggling other bills.
If your financial situation changes, it’s often easier to update your payment terms with the IRS than it would be with a bank or lender. In some cases, the IRS may also reduce or waive penalties if you’ve filed on time and kept up with payments.
When a Personal Loan Might Make Sense Instead
Borrowers with strong credit sometimes qualify for low personal loan rates, which may look better than the IRS’s 7% interest, especially when penalties are added. For someone dealing with multiple debts, combining everything into one fixed monthly payment can simplify their finances and reduce stress.
In cases where IRS penalties are especially high, a personal loan could result in a lower overall repayment amount. Still, before taking that step, explore all options to help you with an installment agreement that fits your income and avoids the risks of adding new debt.
How to Apply for an IRS Installment Agreement
If you're unable to pay your full tax balance right away, setting up an IRS installment agreement can help you spread out the cost over time. The process is straightforward, especially if you’re prepared with the right information before applying. Here are the key steps to follow:
- Confirm all required tax returns are filed: The IRS won't approve a payment plan if you haven’t filed all past due returns.
- Check your total tax debt: You can view your balance by creating or logging into your account at the IRS website.
- Determine your eligibility: If you owe $50,000 or less and are up to date with filings, you likely qualify for an online long-term payment plan.
- Choose your payment method: Direct debit is preferred because it lowers setup fees and reduces the risk of missed payments.
- Apply using the IRS Online Payment Agreement tool: Go to the IRS website and follow the prompts to submit your application.
- Set up monthly payments that match your budget: The IRS will ask for financial details to help calculate an affordable amount.
- Watch for confirmation: Once approved, you’ll receive a notice outlining your payment terms and due date.
- Make payments on time and stay current with future taxes: Falling behind can cancel your agreement and lead to additional penalties.
Who Can Help You With an Installment Agreement?
Accountants and tax professionals like Polston Tax can assist you with exploring payment options and help you with an installment agreement directly with the IRS. Only 35% of Americans worked with a financial advisor in 2022, so many taxpayers miss out on expert help. Polston Tax has been helping people resolve IRS and state tax issues since 2001, with a team of accountants and financial analysts working together to reduce tax debt while protecting clients’ financial interests.
The firm offers nationwide tax resolution services that include audit representation, penalty abatement, IRS appeals and negotiation of payment plans such as installment agreements tailored to a client’s financial situation. Beyond tax resolution, Polston Tax provides full-service accounting and bookkeeping services that help individuals and businesses optimize deductions and reduce overall tax liability.
