Defaulted on an IRS installment agreement? How to get back on track

Your agreement includes conditions beyond the monthly payment. The most common causes of default are: Direct debit plans default less often because payments are automatic, but a bounced debit still counts.

• Missing a payment or paying less than the agreed amount.
• Not filing a required future return on time.
• Owing a new tax balance that isn't paid when due — often because withholding or estimated payments were too low.
• Not providing updated financial information when the IRS asks.

Before terminating, the IRS generally sends a CP523 explaining that the agreement is in default, why, and the date it will terminate. It also explains that after termination, the IRS can levy. Read it carefully: the fix depends on the cause. If it's a missed payment, paying the missed amount and calling is often enough. If it's a new balance, you'll need to pay it or roll it into a revised agreement.

If you act before termination, the IRS can often reinstate the existing agreement. If the agreement is already terminated, you can usually request reinstatement or apply for a new plan, sometimes online if the total balance is within the $50,000 individual limit. A reinstatement or revision fee may apply; revising a plan online costs $6, with fee waivers for some low-income taxpayers. See installment agreements.

If the IRS proposes to terminate your agreement, you can request a review under the Collection Appeals Program. Generally, the IRS can't levy while the termination is being appealed or for 30 days after termination. After termination, the IRS will typically send a new notice of intent to levy and your Collection Due Process rights if not previously offered.

While an agreement is in effect, the failure-to-pay penalty on timely filed returns is reduced to 0.25% a month. After termination, it returns to 0.5% and can rise to 1% a month after the IRS issues a notice of intent to levy. Interest continues throughout. Getting back into an agreement quickly limits the extra cost.

A default is often a sign that the payment is too high. Rather than reinstating the same amount, ask for a lower payment based on current finances. If you can't pay anything after basic expenses, request Currently Not Collectible status. If you'll never be able to pay the full balance before the collection statute expires, a partial payment installment agreement or an Offer in Compromise may be worth exploring.

1. Switch to direct debit if you can.
2. Increase withholding or estimated payments so you don't owe next year.
3. File every return on time, even with a refund due.
4. Call before missing a payment if money is tight — the IRS can sometimes allow a skipped payment.
5. Keep your address current so you receive notices.

Suppose you owe $18,000 on a $400-a-month direct debit plan, and you change banks without updating the IRS. The debit fails, and a CP523 arrives giving a termination date about a month out. Calling with new bank details and making the missed payment before that date usually keeps the plan intact. Wait until after termination and you may face a reinstatement fee, a higher penalty rate and the risk of a levy notice.

Businesses with payroll tax agreements default the same way — often by missing a current federal tax deposit, which the IRS treats as a new liability. See our business payroll tax payment plan guide for those rules.

The IRS applies refunds to your balance while you have an agreement, which shortens it but doesn't count as a monthly payment. Keep paying as scheduled even after a refund offset unless the IRS tells you otherwise in writing.