Do You Need an Installment Agreement with the IRS?
Do you owe a large tax debt to the IRS? Are you unable to pay the entire sum? Fortunately, there are some payment options for those who may not be able to pay the IRS the amount they owe in a single payment.
What is an Installment Agreement?
An installment agreement is a payment plan that you can enter into with the IRS that allows you to pay your tax debt over time instead of all at once. It is very similar to a credit card payment in that you pay a small amount each month, rather than paying a large lump sum. For those individuals and businesses that do not have an endless supply of funds in the bank, this makes the payments to the IRS more manageable. The IRS gets their money and you get to pay back the debt over time, so it could be a win/win!
Will You Qualify?
Generally, the IRS will grant an installment agreement to individuals who owe less than $50,000 and are current on their tax returns. So, if you have filed all of your previous returns, you may be eligible for an installment agreement with very little resistance from the IRS. In these cases, you can apply for the installment agreement on the IRS website.
If you owe the IRS more than $50,000 and cannot pay your debt in six years or less, then you will have to negotiate for an installment agreement with an IRS collection representative. You will need to complete Form 433-A. The IRS representative will review this form and your situation and help determine how much you will be able to pay back each month. They will look at your income, your monthly living expenses and based on what is left, determine your payment.
Other Important Things to Keep In Mind
While an installment agreement may sound like the answer to all of your prayers, keep in mind that this process may take several months and the IRS will notify you in writing if they grant your installment agreement. The biggest drawback of an installment agreement is that interest and penalties still accrue while you are paying the debt back. Interest and penalties can amount to 8-10% each year, so you may want to look for other payment options before you explore this with the IRS.
And, if after you pay your living expenses each month, you do not have enough funds to make a payment to the IRS, you may not be eligible for an installment agreement. You may need to consider instead an offer in compromise, in which you negotiate to pay the IRS less than the total amount you owe, or even consider Chapter 7 bankruptcy.
As far as setting up your payment plan, the IRS will want to be sure that they get your money each month. They expect you to pay either with a direct payroll deduction from your monthly paycheck or a direct debit from your bank account.
You may want to have some help determining the best payment option for your unique situation. The team at Success Tax Relief has worked with thousands of taxpayers over the last 30 years to find tax solutions that work. Give us a call at 1-877-958-6638 if you are ready to discuss your tax situation with one of our tax professionals.