Can’t pay off your outstanding taxes all at once like the IRS demands? When paying your tax obligations to the IRS, you have multiple options. The most common type of IRS payment plan you will hear about is an installment agreement. Many people are interested in this option because they can avoid wage garnishment or bank levies. You may have a thousand questions about this tax debt settlement, and yes, you are not alone!
The IRS offers this option because it knows that some taxpayers might be unable to pay the total amount owed at once (due to financial hardship or other reasons). Many people take advantage of this program each year — but not everyone qualifies for an installment agreement on their first try.
Let us have a look and dive into the basics and detailed report about this payment plan.
Understand the Installment Agreement
The IRS Installment Agreement is a payment plan that allows you to pay your tax liability in monthly installments. This means that you’ll pay your taxes in smaller installments over months or even years instead of paying all at once. An Installment agreement can help you avoid costly penalties and interest charges on top of your original amount due to the IRS. The amount you owe will also be divided into more manageable payments, making it easier financially for some people.
This agreement can be made with the IRS before or after they file a Notice of Federal Tax Lien (NFTL) against your property.
If your application for the installment agreement is successfully approved, you will receive a notice from the IRS stating the amount due each month and the time required to pay off your balance.
How much can you afford to pay?
The next step is to find out how much you can afford to pay. The IRS recommends setting aside 10%-30% of your net monthly income and sending it in with your payment plan application. However, if that figure is higher than you can reasonably manage consistently, ask for a lower percentage. If it’s still too high, consider asking for an installment agreement plan with a longer term (such as 60 months) to make payments less frequently and/or at smaller intervals.
Once you have your monthly estimate of what you owe, it’s time to decide whether or not this amount is feasible for your budget. You don’t want to end up in back taxes again!
If you’d like help determining how much can be paid each month without causing undue financial strain on yourself or your family, do not hesitate to reach out to one of our tax specialists today!
Types of IRS Installment Agreements
Now that you mention it, an installment agreement doesn’t sound that terrible. In addition, the government can select from different distinct options. One of them may be fit for your specific tax situation.
- Guaranteed Installment Agreements
If you owe the IRS $10,000 or less, a guaranteed installment agreement is an option, and you can quickly be approved for the plan. Just make sure to fulfill a few requirements.
- Submitted all previous tax returns.
- You have submitted or paid your returns on time for the preceding five years.
- You have not been approved of the installment agreement plan within the previous five years.
- You can settle the total amount for three years or fewer.
- Streamlined Installment Agreements
The maximum amount of taxes that can be due is increased to $50,000 with a streamlined installment agreement; this figure does not include any penalties or interest. You must be able to pay the entire amount within six years to qualify for this agreement.
- Installment Agreement for Tax Debt over $50,000
This plan is available only when taxpayers owe more than $50,000 in back taxes. The IRS thoroughly reviews your financial situation to manage and pay off your back taxes early.
For this type of agreement, it is feasible to consult a licensed tax debt relief professional to be guided accordingly and for them to properly assess your condition and tailor the best strategy and negotiations to the IRS.
- Partial Payment Agreement
The IRS may propose you a partial payment plan if you cannot afford to pay your entire tax debt, depending on several factors. Because financial circumstances vary, the IRS officials assigned to your case may reassess your eligibility every two years.
There is usually a final payment deadline with partial payment plans. You won’t be expected to make any more payments beyond that point.
Applying for the Installment Agreement.
The IRS offers the Installment Agreement service, which allows you to pay your taxes over time. To apply for this arrangement, you’ll need to file Form 433-D. This can be processed online or via mail (the IRS will notify applicants of their acceptance or denial). Any outstanding issues with your account will also have to be addressed before an installment agreement can be established.
Once approved for an installment plan, you’ll receive information about how much money needs to be paid each month and how long it takes until all outstanding balances are paid off. Taxpayers must make their scheduled payments on time and keep their payment history up-to-date so they don’t receive additional penalties that could further increase their overall balance owed!
Managing your tax debt during an installment agreement.
You must pay according to the conditions of your installment agreement. This means paying on time and in full.
If you can’t pay as agreed, you’ll need to contact the IRS to arrange for a new payment agreement. You should know that interest and penalty charges may be added to the amount due. Interest starts accruing on an unpaid balance at about 6% per year after two months have passed; this continues throughout an installment plan unless and until full payment has been made in full.
If you are positioned into financial hardship due to the tax obligations you’re currently compensating for, you should immediately inform the IRS. Once they have evaluated your situation, they can suspend collections.
If you do not notify the IRS and stop paying, they will put you back into their aggressive collections and may risk your assets and/or bank accounts being levied or garnished. Remember our main goal here is to acquire tax debt relief.
Find a Reputable Tax Debt Relief Expert.
Get yourself a qualified tax professional who’s experienced with presenting financial statements to the IRS and who’ll act quickly with the IRS to ensure your rights are protected, and you receive the best possible outcome.
Our experienced Tax Fresh Start Initiative team would be happy to help you with your options!
The IRS Installment Agreement can help you become tax debt free, but only if you choose wisely when creating one and stay on top of it once you secure this relief option.
Don’t get into high spirits just yet: there is still work to be done! Now that you are familiar about the basics of an IRS installment agreement, ask yourself these three questions: can I afford to pay this off piece by piece? Would I be better off handling it myself? And do I have the time and energy to complete an application successfully?
With the benefit of this knowledge, you can now make an informed decision. The bottom line is that there is no one-size-fits-all approach to installment agreements. If applying for an installment agreement is still the right choice, do so as soon as possible. Don’t delay!
Schedule your free tax assessment with our qualified tax experts today!
