When should I call the IRS to set up a payment plan for my tax debt?

Do you know what the current interest rate is that the IRS charges? And is there a minimum monthly payment required for the payment plans?

The IRS interest rate is currently 8% per year (it's adjusted quarterly). That's on top of the failure-to-pay penalty, which is usually 0.5% of the unpaid taxes per month until you pay in full or reach the 25% maximum. For installment plans, the minimum payment depends on how much you owe. The IRS generally wants you to pay off your tax debt within 72 months, so they'll calculate your minimum monthly payment based on your total debt divided by 72. With your $7,420 balance (minus whatever you pay upfront), you're looking at roughly $100/month minimum if you paid half upfront.

Does this actually work with IRS payment plans? I've tried other tax tools that claim to help with payment options but they just gave generic advice that I could find on the IRS website.

I'm skeptical about these tax tools. Can it actually set up the payment plan for you or does it just give you information? Because information I can get for free from the IRS website.

It actually analyzes your specific tax situation and does the calculations for different payment scenarios. It's not just generic advice - it shows exactly how much you'd pay in fees and interest for each option based on your tax debt amount and how much you can pay upfront. The tool doesn't set up the payment plan for you - you still need to do that with the IRS - but it helps you make an informed decision about which plan to choose and how much to pay upfront. It saved me from making a costly mistake on my payment strategy that would have cost me hundreds more in interest.

Wait, how does this work exactly? They just call the IRS for you? How do they know what information to give them?

This sounds like a scam. Why would I pay someone else to call the IRS when I can just do it myself? The IRS phone lines aren't that bad if you call at the right time.

They don't give the IRS any of your information. They just call and wait on hold (sometimes for hours), then when an IRS agent finally picks up, you get a call from Claimyr and they connect you directly with the agent who's already on the line. So you're the one talking to the IRS, but you skip the hold time completely. The IRS phone lines are absolutely that bad, especially during tax season. I tried calling at 7am when they opened, middle of the day, right before they closed - couldn't get through any of those times. Maybe you got lucky, but most people waste hours trying to reach someone.

Thanks for the tip about the state refund! I didn't even think about that. I'm expecting about $700 back from my state, so that would definitely help reduce what I need to finance. Based on everyone's advice, I think I'll make a payment now of whatever I can afford and then set up a short-term payment plan. Seems like the consensus is not to wait until April 15th!

You're welcome! Yes, using your state refund toward your federal tax debt is a smart move. And definitely don't wait until April - not only will the phone lines be jammed, but you'll be accruing interest on the full amount in the meantime. One more tip: if you set up a payment plan but then find you can pay it off faster than expected, there's no penalty for paying early. I ended up getting a small bonus at work and was able to clear my tax debt in 3 months instead of the 6 I had planned for.

Offers in Compromise are pretty hard to get approved. The IRS only accepts them if they genuinely believe they cannot collect the full amount from you either now or in the foreseeable future. You have to provide extensive documentation of your assets, income, expenses, etc. For a tax debt of $7,420 like the OP has, it's unlikely to be worth pursuing unless they're facing severe financial hardship. The application fee alone is $205 (though it can be waived for low-income taxpayers), and you have to submit a significant payment with your offer.