IRS Payment Plans
If you have recently filed your taxes and your tax return indicates that you owe the IRS taxes, you may need to learn about different ways to pay off your tax debt. While small tax bills can be paid immediately, people who have significant debt may need to explore installment agreements to pay taxes. Learn everything you need to know about Internal Revenue Service payment arrangements, including what your IRS installment agreement options are and how to apply for an IRS payment plan.
If you’re behind on your IRS payments and receiving notices like the CP14, CP503, or CP504, don’t panic. A payment plan may be the solution for you. Our skilled tax attorney can help you set up a payment plan that works with your budget and gets you back on track with the IRS. We understand that times can be tough, and we’re here to help. Don’t let your IRS liability get the best of you – give us a call today.
What are the benefits of an IRS payment plan?
There are several benefits to setting up an IRS payment plan. First, it can help you avoid IRS penalties and interest. Second, a payment plan can help you keep your tax liability from growing larger. Third, a payment plan can help you get back on track with the IRS. Lastly, a payment plan can help you keep your tax liability from being turned over to a collection agency.
What is an IRS payment plan?
The fastest way to pay off your tax debt is to make a full payment each time you file a tax return. However, while this method will help you avoid future penalties and interest, many people are unable to completely pay off tax debt at the time of tax filing. Fortunately, the IRS has several installment plans that make it easy to pay your taxes without going into debt, such as short-term and long-term payment arrangements.
What types of installment agreements does the IRS offer?
The fastest way to pay off your tax debt is to make a full payment each time you file a tax return. However, while this method will help you avoid future penalties and interest, many people are unable to completely pay off tax debt at the time of tax filing. Fortunately, the IRS has several installment plans that make it easy to pay your taxes without going into debt, such as short-term and long-term payment arrangements.
Short-Term Payment Plan
A short-term payment plan is intended for individuals who will be able to pay off their taxes within 180 days. You can apply online for this payment plan, although people can also submit an application via phone, mail, or in-person visit. You can use this payment arrangement if you owe less than $100,000 and if you have filed all your tax returns.
Long-Term Payment Plan
Long-term payment plans are designed for individuals who owe less than $50,000 in taxes, interest, and penalties and interest, and who will need more than 180 days to pay off taxes. There are a couple of long-term payment arrangements to consider, such as:
Guaranteed Installment Agreement
For individuals who owe less than $10,000, your application for an installment plan will usually be automatically approved as a guaranteed installment agreement. Under this plan, you will have three years to pay off your taxes.
Streamlined Installment Plan
A streamlined installment plan is designed for individuals who owe more than $10,000. With this plan, you will usually have 72 months to pay your taxes, and the minimum monthly payment for your tax debt will be set by the IRS.
Partial Payment Plan
A partial payment plan is an agreement you make with the IRS to settle your tax bill for less than what you owe. This is an ideal plan for individuals who cannot afford to pay the combined tax, interest, and penalties within the specified time frame of other payment plans. Individuals must owe more than $10,000 in back taxes to enter this agreement with the IRS.
Direct Debit Installment Agreement
A direct debit installment agreement is any long-term or short-term installment plan that you agree to pay via electronic debit payments from your checking account or savings account. There are many benefits of using a direct debit payment arrangement, such as avoiding late payment penalties and enjoying a reduced setup fee.
How Long Will Your Payment Plan Last?
Your IRS payment plan will usually last for a period of three years or 72 months if you are applying for a long-term plan. Most short-term plans must be fulfilled within 90 to 180 days. Other plans may have a time frame of 120 days. If you are unable to pay your taxes within the specified time frame, you may need to apply for other tax payment plans.
Is There a Setup Fee for an IRS Installment Agreement?
Most IRS installment plans have setup fees, which should be submitted with your application. The setup fee is usually determined by how you apply for your IRS payment plan and how you will make your monthly payments.
If you agree to pay your taxes via direct debit, your setup fee will be significantly less expensive than if you plan to make your monthly payments manually. Applying online is also cheaper than setting up your payment plan over the phone, by mail, or with an in-person visit to your local IRS office.
Special Waivers for Low-Income Taxpayers
A low-income taxpayer can sometimes qualify for special waivers or reduced fees when they apply for an IRS payment plan. To qualify for these special waivers, you will have to submit proof of your household’s gross monthly income to determine whether or not you are below the federal poverty level. Most of the time, the user fee for your application will be reduced to $43 and will be reimbursed when you pay off your tax bill.
What Will Your Monthly Payment Be?
Your minimum monthly payment amount will be determined by several factors, including the time frame of your payment plan, the amount of tax debt you owe to the IRS, and any applicable penalties and interest that may be added to your debt.
With some installment agreements, you may be able to set your minimum payment, while for others, the IRS may calculate your minimum payment for you by dividing your tax debt by the number of months for your installment plan.
How Are Payments Made?
Aside from direct payments from your bank account, there are many other ways to make your monthly minimum payment. Many taxpayers send payments via money order or check each month.
However, automatic withdrawals may be more convenient and may help you qualify for other benefits. If you cannot afford to pay your minimum monthly payment, you may be able to negotiate with the IRS for a smaller monthly payment amount.
Do Penalties and Interest Continue to Accrue?
Even if you are making direct debit payments from your savings account, your tax debt may accrue additional penalties and interest. For example, the IRS charges interest until the balance of your tax debt is paid in full for long-term payment plans. Your monthly payment for your IRS payment plan will usually include these penalties and the interest rate on your debt.
Do You Qualify for an Installment Agreement IRS?
To qualify for most IRS payment plans, you will need to submit a Collection Information Statement (Form 433-A) with your application if you owe over $50,000. This form is a collection of all your financial information, including information from the current tax year and your previous tax returns. Along with your individual tax ID number and personal identification information, you may also have to submit a written request with your application.
Other requirements to qualify for an installment agreement include agreeing to pay your back taxes within the specified time frame, making estimated tax payments for the current tax year, and not being involved in any tax evasion. If you meet all of these qualifications and submit all of the required forms, the IRS will approve your application within 30 days.
Fresh Start Program Qualifications
The IRS Fresh Start Program has made it much easier to qualify for long-term payment plans. In the past, taxpayers would have had to provide financial information to apply for installment agreements for debt over $25,000, which increased the likelihood of the IRS denying the application. Today, the IRS allows individuals to submit payment plan applications without additional financial information if they owe $50,000 or less.
Can You Change Your Existing Payment Plan?
Some individuals who struggle to pay the balance of their tax debt may need to change their existing payment plan, such as when their income level changes. You can apply online to revise your current agreement, or you can apply in person if you want to update your long-term payment plan.
Changing your existing IRS installment plan may be a way you can reduce your minimum monthly payment, particularly if you are a low-income taxpayer or you want to switch to automatic withdrawals. You can also change your current payment plan to add new tax debt, but this isn’t guaranteed.
Should You Contact a Tax Relief Company?
While individuals should be able to apply for IRS payment plans by themselves, people who owe a significant debt or who are facing penalties such as wage garnishment may need expert guidance. It may be in your best interest to reach out to a tax advisor or a tax lawyer when you apply for a long-term payment plan, especially if you are self-employed.
If you cannot afford to pay the combined tax and fees on your tax bill balance, you can work with an expert to negotiate your debt with the IRS or buy more time to get your finances in order. Tax relief strategies you may be eligible for include:
- Bankruptcy
- Currently not collectible
- Innocent spouse relief
- Offer in compromise
- Penalty abatement
Currently Not Collectible Status
A currently not collectible status can be used by individuals who will experience significant financial hardship to pay off a tax debt balance. When you apply for this status, the IRS completes an analysis of your financial circumstances.
If you are approved for this status, the IRS will stop collection efforts on your tax bill for a short period of time. You will need to continually update your financial information to stay qualified
What if I can’t afford an IRS Installment Agreement?
If you’re not able to make monthly payments on an IRS payment plan, the IRS offers other options. You can request a temporary delay in collection action or offer in compromise.
Offer in Compromise
Although similar in spirit to a partial payment plan, an offer in compromise is a program that allows you to negotiate your debt with the IRS for less than what you owe. You may qualify for this program if you truly cannot afford a monthly payment plan or if you do not have the ability to pay your tax liability in full without financial hardship, even with a payment plan.
Individual taxpayers may be overwhelmed by tax debt, but the Internal Revenue Service offers many plans and programs to help individuals pay down tax debt. Whether you are in a little debt or a lot of debt, there is an IRS installment plan ideal for your budget. Contact Damiens Law Firm, PLLC at (601) 957-9672 to learn more about IRS payment plans that may be available to you.