NTA Blog: Eliminate Installment Agreement Fees for Low-Income Taxpayers Based on Current Income

 

Introduction on TAS Act and Installment Agreement Fees

On January 30, 2025, Senators Mike Crapo, Chairman of the Senate Finance Committee, and Ron Wyden, the Committee’s ranking member, jointly issued a discussion draft of the Taxpayer Assistance and Service (“TAS”) Act. This proposed legislation marks a significant step in modernizing and enhancing U.S. tax administration. Of its 68 provisions, approximately 40 align closely with legislative proposals I have included in my recent Annual Reports to Congress and Purple Book Legislative Recommendations.Installment Agreement.

Previously, I wrote on the importance of this proposed legislation for advancing taxpayer rights. In this post, I will explore why Installment Agreement (IA) user fees can be a significant burden for low-income taxpayers and how the elimination of these fees proposed in Section 107 of the TAS Act could lead to more effective and equitable tax administration and delivering real relief for low-income taxpayers.

 

Why Installment Agreement Fees Can Be a Problem

For millions of taxpayers facing financial hardship, paying off their tax debt through an Installment Agreement is often the only option. IAs allow taxpayers to pay their tax liabilities over time in manageable amounts. However, while this payment option can help taxpayers regain control over their tax situation, it comes at a cost. The IRS charges user fees to set up and maintain these agreements, creating an additional financial burden for taxpayers already struggling to pay what they owe.

 

These fees may seem modest, but they can discourage low-income taxpayers from entering into agreements that would allow them to manage their tax liabilities in a structured and predictable way. Instead of offering an affordable solution to manage tax debt, these fees may cause low-income taxpayers to delay or avoid making an IA with the IRS. This usually leads to penalties, interest accruals, and ultimately, more costly enforcement actions, creating a vicious cycle of debt that could have been prevented with the right support.

 

Eliminating Certain Installment Agreement Fees Can Encourage Long-Term Compliance

For years, my office has advocated for eliminating IA user fees and argued that they are counterproductive for the financially vulnerable. Taxpayers who qualify for low-income status already struggle and face immense challenges. Piling on additional costs does nothing to encourage compliance and only deepens their financial difficulties.

 

That is why my office has made legislative recommendations calling for a complete waiver of these fees for two groups: (1) taxpayers at or below 250 percent of the Federal Poverty Level, and (2) those who commit to paying through Direct Debit Installment Agreements (DDIAs). DDIAs allow for automated, direct payments, which make it easier for the IRS to collect payments on time and reduce the likelihood of missed payments. However, the current system’s fee structure often makes this solution more difficult to access for low-income taxpayers, further discouraging compliance.

 

Section 107 of the TAS Act eliminates IA fees for taxpayers earning below 250 percent of the Federal Poverty Level and expands the fee waiver beyond DDIAs to include any electronic payment method. This is a positive step toward reducing the barriers to compliance for struggling taxpayers. At first glance, our proposal and the discussion draft seem the same, but a closer look reveals that while TAS Act § 107 makes significant progress, it falls short in one important area: how it determines eligibility.

 

Where the TAS Act Can Improve: Eligibility Based on Current Income

One of the most significant differences between our legislative recommendations and § 107 of the TAS Act is how the IRS would determine eligibility for the fee waiver. While § 107 calls for the use of income from the taxpayer’s most recent tax return to determine eligibility, I believe eligibility should be based on a taxpayer’s current financial situation.

 

Taxpayers’ financial circumstances can change rapidly, and they experience financial hardships for many reasons. These may include a sudden job loss, medical emergencies, and unexpected caregiving responsibilities, to name a few. If eligibility is determined solely by a tax return that might be more than a year old, it risks excluding taxpayers whose financial circumstances have worsened since then. For this reason, our proposal includes using real-time income verification or allowing taxpayers to certify their financial hardship if recent income data is unavailable. This approach would ensure that taxpayers who are currently in financial distress are not denied relief simply because their tax return does not reflect their present circumstance.

 

Section 107, however, relies entirely on the most recent tax return, prioritizing administrative efficiency over financial accuracy. This approach is easier for the IRS to implement but creates a risk that some taxpayers in genuine financial distress will be denied relief simply because their last tax return does not reflect their current reality.

 

Conclusion

Eliminating IA user fees for low-income taxpayers is an important step toward a more equitable and efficient tax system. It reduces enforcement costs, encourages compliance, and helps taxpayers stay on track with their tax obligations. No one wins when financially stressed taxpayers fall into deeper debt because of unnecessary fees. Compliance shouldn’t be driven by the ability to pay extra just to get into a payment plan. It should be about making it easier for taxpayers, especially those who are struggling, to fulfill their tax obligations in a way that works for them and the IRS.

 

The TAS Act discussion draft reflects years of persistent advocacy and rigorous analysis by the dedicated staff at the Taxpayer Advocate Service. We are especially proud that our recommendations have shaped this important legislation and brought national attention to an issue affecting millions of Americans. With a minor adjustment, it will make tax compliance easier for those who need it most. By refining § 107 with this consideration in mind, we can create a more effective system that promotes compliance while reducing unnecessary burdens on low-income taxpayers.

 

I remain committed to working with lawmakers, the IRS, and other stakeholders to ensure that these changes deliver real relief where it is most needed. By focusing on current income and financial hardship, we can make the tax system more responsive, fair, and compassionate for those struggling to meet their obligations.

 

Resources

• Purple Book Legislative Recommendation #18: Eliminate Installment Agreement User Fees for Low-Income Taxpayers and Those Paying by Direct Debit
• Purple Book Legislative Recommendation #20: Require the IRS to Consider a Taxpayer’s Current Income When Determining Whether to Waive or Reimburse an Installment Agreement User Fee
• TAS Act discussion draft

 

 

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