Tax debt is infuriating, but fortunately, the IRS offers numerous forms of relief. This includes a number of ways to pay your taxes in installments that are easier to handle than the full debt at once. An IRS Installment Agreement is such an option whereby one is allowed to pay his or her tax debt gradually. Below is a step-by-step guide on how an IRS Installment Agreement is set up, when one should consider setting one up, and what one should do if he/she is unable to make any payment.
- When to Consider an IRS Installment Agreement
If you are owing money to the IRS but cannot pay all in one instance, then an IRS Installment Agreement is a really good option. With such an arrangement, it is possible to split your tax debt into more manageable monthly installments. You can consider seeking an agreement with the IRS Installment Agreement if:
- You owe less than $50,000 in back taxes, interest, and penalties.
- You can afford to make monthly payments without putting your finances under too much strain.
- You cannot pay the full amount within 120 days.
- You want to avoid aggressive IRS collection actions, such as wage garnishment or liens.
If you are not sure that an Installment Agreement is a good option, an Offer in Compromise specialist can help. A specialist will be able to analyze your finances and see if another IRS program, such as an Offer in Compromise, might better fit your relief needs.
- Types of IRS Installment Agreements
The IRS has a number of options for installment agreements based on your financial situation and the amount of tax owed:
- Guaranteed Installment Agreement: This is only available to taxpayers who owe less than $10,000 and have filed all their tax returns on time. The IRS will guarantee acceptance of the agreement as long as the balance is paid within three years.
- Streamlined Installment Agreement: This is available to the taxpayer when the amount owed is up to $50,000. Under this option, the IRS does not require detailed financial documentation, and the balance can be paid off in up to 72 months.
- Partial Payment Installment Agreement: This plan allows a person to pay less than their full tax bill in reduced monthly installments. However, this includes the IRS reviewing your financial situation every two years since, if your financial situation improves, they will require you to pay more.
- Non-Streamlined Installment Agreement: For debts over $50,000, this will be an agreement that requires thorough financial disclosure. The IRS will analyze your income versus expenses and your assets to determine an acceptable payment plan.
Step 1: Get Your Finances Together
Before applying for the IRS Installment Agreement, gather all of your necessary financial information. This will include:
- Pay stubs or income statements.
- Bank account statements.
- Documentation of monthly expenses.
The advantages of streamlined installment agreements simply mean that less burden will be placed on the taxpayer when it comes time for them to disclose financial details in a particular case. Information about your assets, including but not limited to, real estate and investment income. All of the financial information needs to be as accurate as possible since the IRS is going to base the amount you are able to pay and what your installment agreement plan will look like directly from this information.
Step 2: Determine Your Ability to Pay
Start by collecting your financial information, and then do the math to determine how much you can afford to spend monthly. Take into consideration all your living costs and make sure you leave room in your budget for unexpected expenses. To estimate your monthly payment, use the IRS’s Online Payment Agreement Tool to determine a reasonable payment amount based on the amount of tax debt and financial situation. If you are working with an Offer in Compromise specialist, they too can provide important advice in determining a feasible payment plan.
Step 3: Filing for IRS Installment Agreement Request
You can apply for an IRS Installment Agreement in one of the following ways:
- <H3>Online: You can use the IRS Online Payment Agreement if you owe less than $50,000. You can apply for a streamlined installment agreement, and after you’ve applied, you will get immediate notification of whether your application has been approved or rejected.
- <H3>By Mail: If you can’t use the online tool because you owe more than $50,000 or you simply want to do things on paper, you can fill out and send in Form 9465, Installment Agreement Request, along with financial forms like Form 433-F (Collection Information Statement).
- <H3>By Phone or In-Person: You can apply for an installment agreement over the phone by calling or visiting an IRS office personally or by setting up an appointment at an office of the IRS.
Step 4: Wait for the IRS to Get Back to You, and if Necessary, Respond to Any Follow-up Requests
Once your application is submitted, the IRS reviews your financial situation and decides whether or not to approve your Installment Agreement. It can take several weeks to months for the process to be complete, pending the complexity of your case or how simple or complex your request for an agreement is. Respond immediately to IRS requests for additional information such as updated financial information or explanation of an item. Delays in the process of approving the necessary information to facilitate the processing can be caused by slow action on the part of the taxpayer.
Step 5: Make Your Payments
Make a payment each month under your agreement after the IRS has approved your Installment Agreement. You can arrange to have the payments automatically withdrawn from your bank account so you will never have to concern yourself with a payment date passing you by. Paying on time is important because not paying on time may result in penalties and interest, or termination of your agreement. This would allow the IRS to restart collection activity, including wage garnishment or a levy on your bank account.
What to Do If You Can’t Make a Payment
If you think you cannot make any monthly payment, promptly contact the IRS. In some cases, they may be able to grant a temporary reduction or suspension of payments. Otherwise, you will get behind in your Installment Agreement and incur additional penalties and collections. If you can’t pay long-term, consult with an Offer in Compromise specialist about other relief alternatives, such as an Offer in Compromise or a partial payment installment agreement.
Alternatives to an IRS Installment Agreement
Of course, an IRS Installment Agreement is not your only option. You have several choices for resolving your tax debt:
- Offer in Compromise: This is the program that may allow you to settle your taxes for less than what you owe, provided you can prove that paying the full amount would create a financial burden. The specialists in Offer in Compromise will see whether this option suits your needs.
- Currently Not Collectible Status: If you have extreme financial hardship and aren’t able to make a payment at all, then the IRS might temporarily stop collection efforts. During this period, interest and penalties will be added.
- Bankruptcy: This is an extreme case in which some types of tax debt may be discharged by filing bankruptcy. It is a last resort and will seldom cover all your tax debt.
Conclusion
The IRS Installment Agreement may be the goldmine of relief to help the taxpayers who cannot pay more than what they owe immediately and manage their debt bit by bit with smaller, regular installments. To get an agreement worthy of your consideration, follow through with these steps: gather financial information, calculate your payment ability, submit your request, and stay responsive to IRS inquiries.