It happens to everyone from time to time. Job loss, bad investment decisions, failure of a business, health problems; financial situations can arise that make paying taxes in full impossible. One solution that the IRS offers to taxpayers for whom full payment is out of reach is a payment plan or installment agreement.

The first step in entering into an installment agreement is to decide if it is the right option. If the taxpayer only needs another month or so a simple extension might be a better option. A few things to consider about the installment agreement are that it is not free and it can, under certain circumstances, negatively affect one’s credit report.

The fees for an installment agreement are not that much when compared to most tax debts but they should be considered nevertheless. The IRS charges a $105 user fee although this can be reduced to $52 if the taxpayer agrees to make payments via automatic bank deductions. Additionally, the Department of Health and Human Services has determined poverty guidelines based on specific levels of income. Taxpayers can apply for a fee reduction to $43 based on these guidelines. One more fee that those considering the payment plan should consider is a $45 reinstatement cost for defaulted installment plans.

When applying for the installment plan the IRS may determine that a lien should be placed on certain property of the taxpayer. This is a common practice among lenders – and that’s how the IRS chooses to see the payment plan; as a loan – designed to give them additional security that some or all of the value of the loan will be recovered. If the IRS requires a lien it can negatively affect the taxpayer’s credit report.

If, after considering these aspects of the installment plan, the taxpayer decides to go ahead with a payment plan agreement the next step is to apply. Those with a tax debt of less than $25,000 can apply directly online at IRS.gov for an installment agreement. Form 9465, the Request for Installment Agreement, can also be found at the website. Those with a debt of greater than $25,000 must do the same thing but they may also have to fill out Form 433f, Collection Information Statement.

Once the necessary forms are filled out and sent to the IRS it is simply a matter of waiting.

Installment agreements or payment plans are not necessarily the best options for all taxpayers. Determining the best possible solution for delinquent tax debt is half the battle and all options must be weighed carefully.