IRS Installment Plan: Is It Your Best Option?
An IRS Installment Plan (sometimes also called an installment agreement) allows you to pay your tax debt back to the Internal Revenue Service (IRS) over a period of time, rather than in one lump sum. It works a lot like a credit card, in that you agree to make monthly payments to the IRS to pay your debt over a period of time (usually several years). For some, this is a great solution for paying back taxes, offering an alternative to paying a large bill to the IRS all at once. Here are some things to consider about installment plans that can help you determine if it might be a good option for your situation.
Tips to Determine if an IRS Installment Plan is Right for You:
- Can you can stick to the agreement? When you apply for an installment agreement, you have the opportunity to request a certain monthly payment and even sometimes the duration of the payments. If this is approved, you should be very sure that making this payment is your top priority. If you default on the agreement, the IRS will charge you additional penalties and fees, making your problem even worse. You should be sure when you sign on the dotted line that you will be able to pay the full amount in the extended timeframe allowed.
- Penalties and interest still accrue: Just because you have a negotiated installment agreement with the IRS does not mean that you are exempt from paying interest and penalties. Like a credit card, you are still responsible for interest and penalties on top of the debt that you owe. Typically, the IRS will charge a penalty of 0.5% of the total debt amount each month, plus an additional penalty on taxes due that have not yet been filed. This penalty is usually 5% of the total amount of unpaid taxes each month, but the IRS can charge a maximum of 25% penalty on unpaid and/or unfiled taxes.
- Will you qualify? If you owe $10,000 or less and have filed your previous returns on time and have not applied for an installment agreement previously, your payment plan will most likely be accepted. If you owe more than $50,000, you should be prepared to provide more details about your financial situation.
- Can you afford to pay the full amount back? If you’re unsure whether you have the capacity to pay the tax debt back, even with an installment agreement, you may be better off applying for an Offer in Compromise, which allows you to pay off your debt for less than you owe because of a financial hardship.
Need Help Knowing How to Request an IRS Installment Plan?
The first step to take if you wish to request an installment plan from the IRS is to file Form 9465. This can be filed with your return or sometimes even online. If you have questions about the process or whether an installment agreement is a good match for your tax situation, consider seeking advice from the team at Success Tax Relief. Our tax relief professionals can quickly review your tax returns and help you decide the best path forward. Call us today at 877-825-1179 for more information or contact us online.