Do I Qualify for an Installment Agreement With the IRS?
It is one of the most frequently asked questions about settling a tax debt with the IRS. If you do qualify, you’re able to pay your tax debt over time, rather than in one large sum. While many taxpayers qualify, there are some basic requirements that you must meet and some stipulations of which you should be aware before deciding whether this is the best course of action for you.
1. Tax Debt Under $10,000
If you owe the IRS less than $10,000 and are unable to pay the amount in full, have filed (and paid) your taxes on time for the past 5 years and have not previously requested an installment agreement, the IRS virtually guarantees that they will grant this for you.
In return, you must agree to pay the tax debt (and any interest/penalties) within a three-year window. The IRS generally extends this guarantee to those owing under $50,000 as well — you just may be asked for additional paperwork.
2. Tax Debt Over $50,000
If you owe the IRS more than $50,000, the IRS will ask for much more detailed information about your financial situation. They will review your assets and liabilities and determine if you qualify.
3. How to Apply
You can apply for an installment agreement on the IRS website or by phone via Form 9465.
4. Interest and Penalties Still Apply
As with most things, there are potential drawbacks for extending the amount of time you have to pay the IRS. Perhaps the most significant is that even with an installment agreement in place, you are still responsible for paying the IRS interest and penalties on your debt.
This is calculated in your monthly payment over time, but you should be aware that you are paying over and above your actual debt. Some estimate that you end up paying 8-10% more in penalties and interest.
There is also a small fee that you pay the IRS for setting up the installment agreement.
- $52 when you agree to direct debit
- $120 for agreements not debited directly from your bank account
- $43 if your income is below a certain level
- $0 if you qualify for a Short Term agreement
6. Payment Mechanisms
When you negotiate the installment agreement with the IRS, you generally have some input about the monthly payment amount. You should try to pay anything up front that you can and then pay as much per month as you can reasonably afford. It may take the IRS a few months to notify you in writing that they have approved the agreement, so it may be wise to start making payments before you receive this notification.
Installment agreements can be tricky and you may decide you need advice about how to submit your application and how to determine what to agree to pay each month. Success Tax Relief has helped hundreds of clients negotiate installment agreements and our team can help you too. Contact us today to speak with one of our tax professionals about resolving your tax debt.