If you qualify for a short-term payment plan, you won't have to pay any user fees. If you can't pay the taxes you owe before the due date of the original return, the balance is subject to interest and a monthly late payment penalty. There's also a penalty for not filing a tax return, so you must file it on time even if you can't pay the full balance. You should always pay in full as soon as possible to minimize additional charges.
In many cases, loan costs may be lower than the combination of interest and penalties that the IRS must charge under federal law. Normally, the penalty for late payment is 0.5% per month, not exceeding 25% of unpaid taxes. The interest rate, adjusted quarterly, is currently 4% per annum, with daily capitalization. Partial payment plans are hard to come by because the IRS is basically giving up on collecting the full balance due.
In circumstances where a partial payment plan is justified, the IRS will receive all available sources of collection to determine your collectability. If you request a payment plan (installment agreement), it can take up to 90 days for your request to be processed. Generally, you may have 3 to 5 years to pay off the balance. IRS partial payment plans are sometimes difficult to negotiate because of the IRS's reluctance to grant them or even consider them as an option.
The IRS prefers this method and will ensure that payments come directly from the taxpayer's bank account, rather than the taxpayer having to worry about manually submitting payments to the IRS. Partial payment plans essentially recognize that it is sometimes not economically feasible for a taxpayer to pay the full balance due and, instead, they create a method to pay as much of their overdue tax liability as possible without putting them in financial difficulty and without the IRS resorting to adverse collection activity.
