Offer in Compromise vs installment agreement: which fits you?

• What you pay: an installment agreement pays the full balance plus 7% interest and a reduced penalty. An Offer in Compromise pays your reasonable collection potential — potentially much less, if accepted.
• Who qualifies: almost anyone with filed returns can get some payment plan. Offers require that your asset equity plus 12–24 months of disposable income be less than the balance.
• Speed: online plans for balances up to $50,000 are approved in minutes. Offers often take 6–12 months or more.
• Upfront cost: plans cost $29–$69 online. Offers cost $205 plus 20% of a lump-sum offer, unless low-income.
• Disclosure: a simple plan needs no financial statement. An offer requires Form 433-A (OIC) with full documentation.
• After approval: both require staying compliant. An accepted offer requires five years of on-time filing and payment.

If you can pay the balance before the collection statute expires, the IRS will expect a plan — an offer would likely be rejected. Plans also make sense when you want certainty quickly, have a modest balance, or have equity you'd rather not disclose and liquidate. Estimate a payment with the payment plan calculator and check installment agreement eligibility.

When your income after allowable expenses is low, you have little equity, and the balance is large relative to both. Typical examples: a retiree on fixed income with a large old balance, someone whose business failed leaving tax debt, or a person with ongoing medical hardship. Check the Offer in Compromise qualifications, estimate RCP with the OIC calculator, and run the official IRS Pre-Qualifier.

The repayment vs settlement calculator estimates the total cost of a plan over the term you choose and an offer based on your equity and disposable income. It shows when an offer is unlikely because your collection potential is at or above the balance. Remember: a settlement amount can't be predicted from the balance alone — it depends on documented income, allowable expenses and asset equity.

Yes, in sequence. Many people set up a payment plan first to stop collection, then submit an offer if their finances support it. While an offer is pending, the IRS generally won't levy, but you should keep any existing plan payments current unless the IRS tells you otherwise. If an offer is rejected, you can return to or start a plan. Penalty abatement can lower the balance under either option.

Cost to apply. An installment agreement has a modest setup fee ($29 online with direct debit, less for low-income applicants). An offer costs $205 plus an initial payment, unless you meet the low-income waiver.

Time to approval. Online payment plans can be approved immediately. Offers commonly take six months to a year or longer, and the collection statute is paused while they're pending.

What you pay. A payment plan pays the full balance plus ongoing interest. An accepted offer pays your reasonable collection potential — which may be much less, or may equal the balance if you have equity or income.

Risk. If an offer is rejected, you've spent months and the fee, and the IRS has longer to collect. A payment plan's main risk is default from a missed payment or a new balance.

Ongoing obligations. Offers require five years of full compliance after acceptance; payment plans require compliance for the plan's life.

Be wary of anyone who recommends an offer before reviewing your full finances, guarantees acceptance, or quotes a settlement percentage. The IRS publicly warns about "offer in compromise mills." See tax relief scams and red flags.