IRS payment plans for payroll tax debt

The IRS's Simple Payment Plan covers:

• Operating businesses owing $25,000 or less when the balance includes trust fund (payroll) taxes.
• Businesses owing $50,000 or less with no trust fund taxes.
• Out-of-business sole proprietors owing $50,000 or less.

Conditions include filing all required returns and staying current on deposits. A business can sometimes pay a balance down below the limit to qualify.

Larger payroll balances generally require a full financial picture on Form 433-B (and often Form 433-A for owners), plus bank statements, receivables aging and profit-and-loss statements. The IRS will want to see that monthly payments are realistic and that the business can make its current deposits. If a revenue officer is assigned, the plan is negotiated with them, and they may still pursue the Trust Fund Recovery Penalty investigation in parallel.

• Every future deposit made on time and every return filed.
• Monthly plan payments made on time.
• No new balances. Pyramiding while on a plan is one of the most common reasons business agreements default.

While on an approved plan, the failure-to-pay penalty rate drops for individuals; for businesses, interest and penalties keep accruing until the balance is paid, so paying faster saves money. Compare plan lengths with our payment plan calculator.

A business plan doesn't automatically stop a TFRP assessment. The IRS often protects its position by assessing the penalty against responsible people while the business pays, then crediting business payments against it. Writing a designation on voluntary payments steering them to trust fund taxes helps reduce individual exposure first.

If monthly payments aren't realistic, the business may consider an Offer in Compromise — usually only if it's current on deposits — or hardship status for a closed business with no assets. Penalties can often be reduced through payroll penalty abatement. Take the business assessment to see which may fit.