Installment agreements for business tax balances: Forms 941, 945 and 940, and 1099 penalties

What kind of balance you have

The IRS sorts business balances into two groups, and the group decides which agreement is available. Trust fund taxes are, in the words of Publication 594, “the income tax, Social Security tax, and Medicare tax (trust fund taxes) withheld from the employee’s wages” (Publication 594, Rev. 1-2026). On a Form 941 balance, the withheld amounts are trust fund taxes; the employer’s own share is not. Backup withholding reported on Form 945 is also withheld from someone else’s payment, and the Form 945 instructions warn that if “taxes that must be withheld (that is, trust fund taxes) aren’t withheld or aren’t deposited or paid to the U.S. Treasury, the trust fund recovery penalty may apply” (Instructions for Form 945, 2025). Federal unemployment tax on Form 940 is different: “Only the employer pays FUTA tax; it isn’t withheld from the employee’s wages” (Publication 15, 2026).

The manual defines the other group. BMF non-trust fund liabilities are those that “do not include unpaid trust fund taxes subject to the Trust Fund Recovery Penalty (TFRP) under IRC 6672”, and its examples are “corporate income taxes, civil penalties and employment tax liabilities when the trust fund portion is paid in full, and only the employer tax, penalties or interest remains due” (IRM 5.14.5.1.6, 07-21-2026). Information return penalties under IRC 6721 and 6722 are civil penalties, so a balance made up only of those penalties falls in the non-trust fund group.

The condition for every agreement: be current

No business agreement is granted to a taxpayer that is still falling behind. IRM 5.14.1 states it plainly: “Business taxpayers with employees must file all required returns and must be current with payment requirements (e.g., federal tax deposits (FTDs), estimated (ES) tax payments for C Corporations, or for other business entities when applicable.)” The manual’s short form is “Filing compliance = all required returns are filed or on an approved extension. Payment compliance = all required federal tax deposits and/or estimated tax payments are current” (IRM 5.14.1, 07-20-2026).

The requirement continues for the whole term: “Current returns for taxes must be filed and current deposits paid before an IA can be approved and the taxpayer must remain tax compliant for the entire term of the IA, or they will default on the agreement.” For an employer this means the deposits for the current quarter come first. If cash will not cover both current deposits and the old balance, the manual tells revenue officers that deferring action on the delinquent taxes “may serve no useful purpose” and that levy, seizure or a TFRP should be considered (IRM 5.14.7.2). The deposit rules themselves are in Form 941 deposits and the failure-to-deposit penalty.

The agreement types for a business

The July 21, 2026 revision of IRM 5.14.5 replaced the old streamlined and in-business trust fund express agreements with Simple Payment Plans. The IRS payments page now says it “now offers Simple payment plans for individuals and businesses” (Payment plans page, updated March 3, 2026).

Simple Payment Plan (non-trust fund balances)

Available when “The aggregate unpaid balance of assessment (the CC SUMRY balance) is $50,000 or less”, counting assessed tax, penalties and interest but not accruals. The qualifying taxpayer types listed are IMF, out-of-business sole proprietors and “BMF non-Trust”. No financial statement is required, no managerial approval is required, and the payment must full pay the balance with accruals by the collection statute expiration date (IRM 5.14.5.2). A taxpayer over the threshold may pay the balance down first.

Simple Payment Plan (Business Trust Fund)

This is the successor to the in-business trust fund express agreement. The public IRM lists these criteria (IRM 5.14.5.4, 07-21-2026):

• “The aggregate unpaid balance of assessment (the SUMRY balance) is $25,000 or less.” Pre-assessed amounts count toward the limit.
• The balance must be within the limit when the plan is granted. The business may pay down beforehand, but “may not use the first installment payment to reduce the balance to the threshold.”
• Payments must full pay all balances, including accrued penalties and interest, by the collection statute expiration date. The old 24-month full-pay rule was removed in 2026.
• No field call to verify assets and no financial statement, but banking and accounts receivable information must be documented, and filing and payment compliance verified.
• Not available if the request comes with a request for levy release, or if the case meets the “Solely to Delay” criteria, including signs of pyramiding or successor entities.
• Direct debit is not required, and managerial approval is not required.

Two side effects matter to owners and officers. An NFTL filing determination is not required for this plan, although a lien may still be filed where the entity has defaulted before or has a history of pyramiding. And a TFRP determination is not required only when the balance is $25,000 or less, the plan is granted, the liability will be paid by the statute date, and “The Simple Payment Plan is granted within 120 calendar days of case assignment on ICS.”

Non-Simple agreements for larger trust fund balances

Above the Business Trust Fund limit, IRM 5.14.7 governs. The revenue officer secures Form 433-B, Collection Information Statement for Businesses (now Rev. 6-2026), and if appropriate Form 433-A for owners; a business that can fully pay from current assets or income does not qualify. The officer verifies income and expenses with bank statements, checks real and personal property, may ask the business to sell or borrow against assets, checks that officers, partners and LLC members are in filing compliance, makes a lien determination, and considers the TFRP (IRM 5.14.7.4, 03-15-2022). Note that IRM 5.14.7 has not been revised since 2022 and still uses the old “IBTF Express” name.

Short-term plans

A business that can pay within 180 days can ask for a short-term plan by phone with a $0 setup fee (Payment plans page). Interest and penalties continue to accrue.

How a business asks

Most online routes are for individuals. The IRS says “Business accounts are unable to apply online for a payment plan” and directs businesses to the number on the notice or 800-829-4933 (Online Payment Agreement page). The Form 9465 instructions say not to use that form if “Your business is still operating and owes employment or unemployment taxes. Instead, call the telephone number on your most recent notice to request an installment agreement” (Instructions for Form 9465, Rev. 7-2024). Form 9465 is for individuals, including an individual who is or may be responsible for a trust fund recovery penalty and sole proprietors whose business has closed. A sole proprietor or independent contractor applies as an individual.

If the balance is already assigned to a revenue officer, the request goes to that officer. If you have received a CP504, responding with a payment plan request before the final notice is usually the cheaper path.

User fees in 2026

The IRS charges a setup fee when it approves a long-term agreement. Because businesses apply by phone, mail or in person, the higher column applies to them.

Source: IRS Payment plans page (updated March 3, 2026); the same amounts appear in the July 5, 2026 rate table in IRM 5.14.1.2. The low-income waiver and reimbursement rules apply only to individuals: “Low-income status for IA user fees applies only to individuals (not partnerships or corporations)” (IRM 5.14.1). The fee is due with the first payment.

What an agreement does and does not stop

The main benefit is protection from levy. IRM 5.14.1.1.1 says that “Generally, no levy may be made on taxpayer accounts during any of the following periods”: while a processable request is pending, while an agreement is in effect, for 30 days after a rejection or termination, and while Appeals considers a timely appeal. The IRS also tells its employees not to issue Letter 1058 while a request is pending.

What an agreement does not do: stop penalties and interest (“During the course of the agreement, penalties and interest continue to accrue”), stop refund offsets, or guarantee there will be no lien. The manual lists “the possible filing of a Notice of Federal Tax Lien (NFTL)” among the costs of an agreement. See Federal tax lien on a business balance. Interest on penalties is covered in Interest on 1099 penalties and Form 945.

The trust fund recovery penalty while you pay

An agreement for the business does not end the exposure of individuals. For trust fund agreements other than the Business Trust Fund plan, the manual says “the trust fund recovery penalty must be considered, the assessment statute expiration date protected, and an assessment determination made” (IRM 5.14.7.4.1). Revenue officers may ask responsible persons to sign waivers extending the TFRP assessment period to the end of the agreement plus one year, and must tell them they can refuse or limit the extension. The same section sets the general approach: “In general, do not request assessment of Trust Fund Recovery Penalties (TFRPs) if business taxpayers meet the terms of installment agreements.” Owners and officers therefore have a direct personal interest in the agreement not defaulting. The penalty itself is explained in the TFRP and backup withholding.

Default, termination and reinstatement

IRM 5.14.11.3 lists the only reasons the IRS may propose termination: failure to pay an installment when due; failure “to pay another tax liability at the time such liability is due”; failure to provide an updated financial statement; inaccurate or incomplete information given before the agreement; and failure to pay a modified amount. For an employer, the second reason is the one that bites: a missed deposit on a later quarter is grounds for default.

The IRS must warn first. Taxpayers “will be notified in writing and given 30 days to comply with the terms of the agreement before the termination of the installment agreement”, by Notice CP 523 or Letter 2975, and the termination can be appealed under the Collection Appeals Program (IRM 5.14.11, 03-14-2022). If you cure the problem before termination, the manual says agreements in default “must be reinstated if taxpayers remedy the default (unless there is another reason for default).”

Before reinstating, a revenue officer looks at the reason for default, ability to pay, the statute date, the need to file or refile a lien, and whether the business is current on deposits and returns. Reinstatement without a new financial statement is allowed where the default came from a new liability that adds no more than two monthly payments within the statute date, or where the agreement meets simple criteria and there was no default in the prior 12 months. A reinstatement fee may apply.

A penalty-only balance under IRC 6721 or 6722

A balance made up of information return penalties, for example after a Notice 972CG was not fully abated, contains no trust fund tax. Because the IRM’s definition of BMF non-trust fund liabilities names “civil penalties”, the Simple Payment Plan criteria apply: an assessed balance of $50,000 or less, compliance with filing and deposits, and full payment by the statute date. Above that amount the business provides financial information.

Two practical points. First, an agreement is a payment arrangement, not a concession on the amount: it does not waive a reasonable cause argument, and a business can still pursue abatement (972CG penalty in IRS Appeals) while paying. Second, “filing compliance” for a payer includes current information returns; a business that owes 1099 penalties and is late with this year’s filings is not in compliance.

Questions people ask