IRS Direct Debit Installment Agreements

If you have trouble paying your taxes on time, one of the most common relief options is the IRS installment agreement. This is a payment plan that allows you to pay off your balance over time, and if you pay through direct debit, you can often minimize paperwork during the application process and make it easier to stay on top of your monthly payments. 

Entering into an agreement also ensures you don’t have to worry about the IRS taking collection actions like filing a federal tax lien, and you stay in good standing while you pay off what you owe. Most taxpayers can apply online for an installment agreement, known as an online payment agreement (OPA), and it’s easy to set up direct debits through the online system. Find out more about how these plans work, how to qualify, benefits, and costs, or contact us at Damien’s Law for assistance today. 

Key takeaways:

• Direct debit installment agreement – IRS payment plan where your payments are automatically withdrawn each month.
• Application – You can apply for a DDIA online if you owe $50,000 or less in combined taxes, penalties, and interest. If you owe more, you can apply using Form 9465.
• Required info – When applying, have your bank details or a voided check ready to connect your account.
• Tips for success – Ensure you have sufficient funds to cover your monthly payments, plan for continued penalties and interest, and adjust your plan when necessary.

What Is a Direct Debit Installment Agreement?

A direct debit installment agreement, or DDIA, is a popular option, in which the IRS automatically withdraws your payment amount from your linked bank account each month. Note that individuals who apply for a plan online must do direct debit if their balance is more than $25,000 – if not, they must apply over the phone or through the mail.

With any IRS-approved installment agreement, the taxpayer agrees to make the minimum monthly payment for a set period of time. The way you pay can impact the type of plan you’ll set up. Setting up direct debits often saves you money and reduces paperwork as explained below.

Benefits of IRS DDIAs

So, why are DDIAs beneficial? Here are a few good reasons to go this route:

• No forgotten payments: When payments are automatically taken out of your checking account, you don’t have to worry about missing a deadline.
• Reduced risk of default: This kind of plan makes it easier to stay compliant with your agreement, which helps you avoid defaulting on the plan. Defaults only lead to more tax problems.
• Lower plan setup fees: With a DDIA, you can apply online with a $22 setup fee or apply by phone, mail, or in person with a $107 setup fee. However, if you don’t opt for direct debit, the setup fee is $69 for online applications. For all other types of applications, the fee is $178. There are reduced fees available for qualifying low-income applicants.
• Avoiding tax liens: Taxpayers with outstanding balances that they continue to ignore could face federal tax liens. This means the IRS has an interest in your property, and it becomes public record. In some cases, the IRS may release an existing lien if you set up a DDIA.
• Easy to qualify: If you meet the eligibility requirements, it’s fairly quick to get approved for a DDIA online.

DDIAs are convenient and help you stay current with your installment agreement terms. You have a lower chance of missing a payment and can save a little money when setting up the plan. Ask a tax attorney if a DDIA is the right option for your situation.

Am I Eligible for a Direct Debit Installment Agreement?

While many taxpayers will easily qualify for a DDIA, there are a few eligibility requirements to know before taking the leap. Here are the eligibility requirements:

• You can apply online for a DDIA if you owe $50,000 or less in taxes, penalties, and interest.
• If you owe more than $50,000, you can still apply, but you have to send your financial information via a collection information statement.
• To go the quick online route with a direct debit agreement, you’ll have to agree to pay off your balance within 72 months. If you need more time, you’ll have to do the collection information statement.
• You must be current on your tax return filings, estimated tax payments, and existing IRS agreements.

If you qualify for the online application, it’s easy to submit on the IRS’s website. If you’re not sure if an installment agreement is right for your tax situation, contact a tax expert at Damien’s Law to explore your relief options.

Steps for Applying for a DDIA

When you’re ready to get on top of your taxes, applying for a DDIA helps you stay in good standing and make payments you can afford. Follow these steps to apply:

Step 1: Confirm Your Tax Liability

Make sure you fully understand how much you owe the IRS. Review your tax return, tax notices you received in the mail, and your online account. You can also call the IRS using the number on your notice to confirm your balance.

Step 2: Apply Online or with Form 9465

If you owe $50,000 or less, you can apply for a DDIA using the IRS’s online portal. If you don’t qualify or don’t want to apply online, you can use Form 9465, Installment Agreement Request. You’ll have to also fill out Form 433-F, Collection Information Statement if required, which you attach with Form 9465. 

Step 3: Include Bank Details

The IRS will need to know your bank account information to set up the direct debit plan. You can enter your details on your online application, including your routing and account numbers, or attach a voided check with your mail-in application. You can also complete Form 433-D to submit this information.

Step 4: Submit Your Application

If applying online, you can submit through the OPA system via the IRS website. This is the fastest way to get your information sent in and approved. You can also mail in your application, but it will take longer to process and approve. You can also call the IRS for a more immediate response at 800-829-1040 for individuals or 800-829-4933 for businesses.

Step 5: Review Your Agreement Terms

If you get a fast approval, review your terms carefully to ensure all the numbers are correct. Note your monthly payment amount so you can plan for how much will be withdrawn from your account. 

What’s the Difference Between DDIAs and OPAs?

Direct debit installment agreements and online payment agreements aren’t necessarily two different types of plans. An OPA can also be a DDIA, and vice versa. Here’s a quick overview of what each of these terms refer to:

• Direct debit installment agreement: This is a payment plan that you pay for through automatic bank withdrawals, and this type of payment plan can be used for varying amounts of tax debts. DDIAs can be online agreements – you can apply online if your balance is $50,000 or lower.
• Online payment agreement: These are installment agreements that are set up online through the IRS website. They can be direct debit, or you can make your payments manually. You can apply online as long as your balance is $50,000 or under, but if over $25,000, you must set up direct debits. Online plans are easy to apply for and you don’t have to send in a lot of paperwork to get approved.

So, the DDIA and OPA are technically different but they overlap for many taxpayers. Applying for a DDIA is part of the online installment agreement process but specifically refers to direct debit withdrawals for your payments.

Find out more about the online payment agreement option by talking to a tax expert.

Other Types of IRS Installment Agreements 

Another type of payment plan may be right for your situation. Consider these options before getting your application ready:

• Short-term payment plan: Under this type of plan, you pay off your balance in 180 days or fewer, and they’re only available for individuals, not businesses. These typically don’t have any setup fees, and you can choose the direct debit option to make it even easier.
• Guaranteed installment agreement: This is an easy payment plan to get if you qualify. You must owe $10,000 or less in taxes and pay it off within three years. You also need to be up to date on all your tax requirements. You don’t have to do direct debit, though it’s always helpful.
• Partial payment installment agreement (PPIA): A PPIA is a good option if you have trouble affording your balance, even with a payment plan. These plans allow you to pay the agreed-upon amount until the statute of limitations for collections expires (10 years), and you don’t have to pay any remaining balance at that time. These are also eligible for direct debit.

You have options when it comes to installment agreements. The important thing is to apply soon so you can start paying off your balance and get your tax debt resolved quickly.

Tips for Success with IRS DDIAs

Direct debit installment agreements help you stay compliant and get your balance paid off. To ensure nothing goes wrong, here are strategies for ongoing success:

Plan for Penalties and Interest

The IRS continues to charge penalties and interest on your account until the balance is completely paid off. This means that you’ll accrue these charges even while under an installment agreement. 

Ensure Sufficient Funds

Make sure your account always has enough to cover the debit withdrawal when it’s time to make your monthly payment. You don’t want to have insufficient funds that can lead to missed payments and bank fees. You get to choose the date for your withdrawal so make sure to select a date that works with your budget.

Track Payments and Deadlines

It’s always wise to use a calendar to mark upcoming payments and tax deadlines. This helps you stay organized and ensure your payments will go through properly, avoiding default on your installment agreement.

Stay in Contact with the IRS

If you are suddenly experiencing any kind of financial hardship that gets in your way of paying on time, notify the IRS right away. It’s better to be honest about your situation than try to hide it or just hope for the best.

Adjust Terms When Needed 

When your finances change, you may need to update your installment agreement terms. You can make some types of changes online, or you may need to contact the IRS. But act quickly so you’re not at risk of defaulting on your plan.

What If I Default on My DDIA?

Once you have your installment agreement set up, it’s important to stay compliant and avoid missing payments. If you default, the IRS could terminate your agreement. If you don’t resolve the issue, you could also face further collection actions like tax liens or levies. 

Even if you can reinstate your agreement after you default, you’ll have to pay a reinstatement fee and you could be required to submit your updated financial information to the IRS.

Do what you can to avoid default. Going the direct debit route helps you stay on track since payments are automatically withdrawn and you have a lower chance of missing a deadline.

Frequently Asked Questions for DDIAs

What If I Owe More Than $50,000?

You won’t qualify to apply for a payment plan online, but you may still qualify for other plans if you send in your application manually. You could also pay down your tax balance enough to qualify for an online installment agreement. 

Can Businesses Apply for a DDIA?

Yes. Businesses that have a balance over $10,000 are required to do direct debit for online installment agreements. They must owe $25,000 or less and be up to date in filing tax returns to apply online. 

Does a DDIA Stop IRS Collections?

The IRS won’t take further collection actions as long as you have an active installment agreement in place and don’t default. Make minimum payments on time until the term ends to stay in good standing.

When Are DDIA Payments Withdrawn?

Your first payment will usually be withdrawn within a few weeks of the approval of the installment agreement by the IRS. Payments will be withdrawn monthly on the agreed-upon date.

Contact Damiens Law for DDIA Assistance

Direct debit plans are simple to set up and help you avoid defaulting on your installment agreement. Apply early so you can get your debt paid off to avoid more penalties and interest and collection actions like liens and levies.

When you need help, contact a tax professional at Damiens Law. Our legal team will review your situation and help you apply for a direct debit installment agreement or other payment plan to get back in good standing with the IRS. 

Contact Damiens Law today to set up a consultation.