How the IRS evaluates your ability to pay

When you request an installment agreement the IRS looks for a realistic monthly payment it can expect to collect. The decision is driven by three core inputs: income, allowable expenses, and available assets. The IRS uses those inputs to estimate monthly “disposable income” (what you can reasonably pay each month) and then proposes or approves a payment schedule that applies that amount to your outstanding tax debt (IRS.gov: Individual Installment Agreements).

Step-by-step: how monthly offers are calculated

  1. Confirm the total liability and any ongoing balances. The IRS will include tax, penalties and interest when calculating the total amount owed (see IRS payments guidance).
  2. Provide income information. That can include wages, self-employment income, Social Security, pensions and other recurring receipts. For detailed plans the IRS will want recent pay stubs, bank statements and tax returns.
  3. Subtract allowable living expenses. The IRS relies on the Collection Financial Standards for routine living costs (housing, food, transportation, etc.). These standards set either national/area-based amounts or allow documented actual costs in certain categories (IRS Collection Financial Standards page).
  4. Account for secured debt and non-exempt assets. The IRS considers equity in assets (cars, real estate) and whether selling them could produce funds to pay the debt.
  5. Calculate monthly disposable income. Income minus allowable expenses and priority payments = disposable income. That figure largely drives the monthly payment.
  6. Determine the term. If disposable income covers the debt within the collection statute period, the IRS will set a term (often up to 72 months in many cases). For lower balances the IRS offers streamlined agreements with simpler qualification rules (see IRS streamlined rules) (IRS.gov).

Required forms and what they show

  • Form 9465 (Installment Agreement Request): used to request a standard installment agreement and set up direct debit. It’s sufficient when you qualify for a streamlined agreement.
  • Form 433-F, 433-A or 433-B (Collection Information Statement): required when the IRS needs detailed financial disclosure to evaluate lower monthly offers, partial-payment plans or more complex situations.

Types of installment agreements that affect calculation

  • Streamlined installment agreement: usually available for balances at or below the IRS online threshold (commonly $50,000) and requires less documentation. The IRS can set monthly payments using a simpler review (https://finhelp.io/glossary/streamlined-installment-agreement-for-low-balance-debts-explained/).
  • Full-payment installment agreement: you agree to pay the entire balance with a monthly amount equal to your disposable income until the balance is cleared.
  • Partial-pay installment agreement: you pay monthly based on current ability, but the balance may not be paid in full before the collection statute expires; typically requires detailed financial statements.

Practical example

  • Scenario: $15,000 total tax liability. Monthly gross household income = $3,000. Allowable monthly living expenses per the Collection Financial Standards = $2,600. Disposable income = $400/month.
  • Result: The IRS would likely propose a monthly payment near $400. If you negotiate $250 and can document necessary higher expenses or temporary hardship, the IRS may accept a lower monthly amount or consider a modification (see nuances in Setting Up an Affordable Installment Agreement with the IRS).

Documentation tips to improve your offer

  • Use the IRS Collection Financial Standards where possible but be prepared to document exceptions (medical bills, childcare, high local housing costs).
  • Provide recent bank statements, pay stubs, rent/mortgage statements and utility bills. Organized documentation shortens review time.
  • Offer automatic direct debit: the IRS favors direct debit agreements and may reduce the setup fee and lower default risk.

Common mistakes and misconceptions

  • Mistake: only submitting Form 9465 when your situation requires a Collection Information Statement. If the IRS asks for Form 433-F/433-A/B, failing to provide it delays or blocks approval.
  • Misconception: proposing a small monthly number without supporting documentation. The IRS expects evidence that the amount reflects real disposable income.
  • Mistake: ignoring asset equity. If you own significant non-exempt assets, the IRS may expect higher monthly payments or liquidation of equity.

What if you can’t afford the payment the IRS proposes?

  • Request a modification using updated financials—if your circumstances change, the IRS can reopen the agreement for review.
  • Consider other remedies: Offer in Compromise (if you qualify) or a Currently Not Collectible (CNC) status for severe hardship (see IRS Offer in Compromise guidance and consult a tax professional).

When to get professional help

If your finances are complex—self-employment, irregular income, significant asset equity, or multiple years of liability—working with a tax professional or enrolled agent can help present a stronger case and avoid costly mistakes (FinHelp resource: When to Seek Professional Help for Tax Debt Negotiations).

Key takeaways

  • The IRS bases monthly payment offers on disposable income: income minus allowable expenses and reasonable debt payments.
  • Use the IRS Collection Financial Standards and support exceptions with documentation.
  • Streamlined agreements (often for balances ≤ $50,000) are quicker; complex cases require Form 433-series statements.

Professional disclaimer

This article is educational and not individualized tax advice. Rules and thresholds can change; consult IRS.gov or a tax professional for advice tailored to your situation.

Authoritative sources

Internal resources