Background

Partial-Payment Installment Agreements give taxpayers who cannot pay their full tax debt a way to make reduced monthly payments. The IRS evaluates current income, allowed living expenses (using Collection Financial Standards), and collectible equity in assets to decide what’s realistically collectible over time (IRS: Partial-Payment Installment Agreements).

How the IRS calculates a PPIA — step by step

  1. Gather financial documents
  • The IRS uses a financial statement to evaluate your ability to pay. You’ll typically provide Form 433-F, Form 433-A (for individuals), or a similar financial disclosure showing income, monthly expenses, bank accounts, and asset values (see IRS guidance on installment plans).
  1. Determine monthly disposable income
  • The IRS compares monthly income to allowable expenses. Allowable expenses follow the Collection Financial Standards (CFS) for basic living costs; anything above those standards may be considered collectible. The result is monthly disposable income that can be applied to tax debt.
  1. Assess collectible assets and equity
  • The IRS looks at non-exempt assets (savings, investment accounts, equity in vehicles or real property). If assets can be sold to satisfy the debt, the IRS may require a lump-sum payment or increase monthly payments.
  1. Project payments through the Collection Statute Expiration Date (CSED)
  • The IRS calculates how much your monthly payment (plus any collectible asset liquidation) will collect before the CSED. If the expected collections don’t equal the full tax liability before the CSED, a PPIA may be approved with payments that leave a remaining balance at CSED.
  1. Finalize terms and monitoring
  • The IRS may require direct debit, periodic financial updates, and will review the arrangement if your financial situation changes. Interest and penalties continue to accrue on the unpaid balance unless otherwise provided by law.

Example

  • Tax liability: $20,000
  • Documented monthly disposable income: $250
  • No liquidatable assets

Under a PPIA the taxpayer would pay $250 per month. The IRS projects those payments until the CSED; if the collected total before CSED is less than $20,000 and the IRS finds no collectible assets, the PPIA can remain in place and the remainder may not be collectible after CSED.

Key points taxpayers should know

  • Interest and penalties: These continue to accrue on unpaid tax balances during a PPIA unless the law says otherwise. The monthly payment usually goes first to penalties and interest, then to principal.
  • CSED matters: PPIAs are often structured around the CSED timeline. The IRS will not generally approve a payment plan that extends beyond the CSED for the purpose of collecting additional amounts after that date.
  • Documentation burden: Provide accurate, current documentation. Using Form 433-F or Form 433-A/B gives the IRS the data it needs to calculate collectible income.
  • Reviews and changes: The IRS can reopen or modify a PPIA if your circumstances change. Missing payments can result in default and enforcement actions.

When to consider alternatives

If your financial picture includes equity that could be sold or if you can afford higher monthly payments, the IRS may require different terms. In some cases, an Offer in Compromise or Currently Not Collectible (CNC) status may better match your situation; compare alternatives in our guide on Options for Resolving Tax Debt: Installment Agreements, Offers in Compromise, and CNC (https://finhelp.io/glossary/options-for-resolving-tax-debt-installment-agreements-offers-in-compromise-and-cnc/).

Practical tips (from experience)

  • Be realistic and complete: Underreporting expenses often leads to denial. I’ve seen clients get approved when their submitted budgets matched realistic receipts and bills.
  • Use direct debit when possible: It reduces default risk and is preferred by the IRS.
  • Keep records for reviews: Save pay stubs, bank statements, and invoices that support your numbers.

Common mistakes

  • Assuming a PPIA stops interest or penalties. It doesn’t.
  • Forgetting to factor CSED into planning — payments may be limited by that date.
  • Not updating the IRS when income improves, which can trigger a demand for increased payments or enforcement.

Related resources

Professional disclaimer

This article is educational and not personalized tax advice. Rules and procedures can change—consult a qualified tax professional or the IRS directly for guidance tailored to your situation.