If your business gets behind on payroll taxes, you need to be proactive about setting up a payment plan. Failure to make arrangements can lead to intense penalties, including the trust fund recovery penalty, which can be assessed against individuals, not just the business itself.
To protect yourself, look into payment plan options, but be aware that traditional payment plans are generally not available for payroll taxes. To get help now, contact us at Damien’s Law today, or keep reading for an overview of how payroll tax payment plans work.
Key Takeaways
- Monthly payment plans can be used to pay off payroll tax debts.
- In-Business Trust Fund Express Installment Agreement (IBTF-Express IA) may be available if you owe less than $25,000 and can pay off the balance within two years.
- Non-express installment agreements are available but require additional financial disclosures to the IRS.
- If the IRS rejects your installment agreement request, you may request a conference with an IRS collection manager and/or file an appeal.
- Setting up a payroll tax installment agreement may help avoid a trust fund recovery penalty, but talking to a tax pro is strongly recommended to confirm eligibility and discuss other possible ways of dealing with this penalty.
Payroll Tax Payment Plans
If you want to pay off your delinquent trust fund tax debt over time, you’ll have to contact the IRS to request monthly payments. Options vary based on how long you need to pay, your history of compliance, and whether or not your business is still in operation.
In-Business Trust Fund Express Installment Agreement (IBTF-Express IA)
This installment agreement is available if your business owes $25,000 or less. In addition to owing $25,000 or less, your business must also meet the following conditions for acceptance into an IBTF-Express IA:
- Pay off the entire tax debt before the earlier of two years or the expiration of the Collection Statute Expiration Date (CSED).
- Enroll in a direct debit installment agreement (DDIA) if the amount owed is between $10,000 and $25,000.
- Comply with all payment and filing requirements, such as filing IRS Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return; IRS Form 941, Employer’s Quarterly Federal Tax Return; and/or IRS Form 944, Employer’s Annual Federal Tax Return.
You can apply for an IBTF-Express IA online or by calling 1-800-929-4933 (or the IRS phone number provided on the applicable bill, letter, or notice).
Non-Express Installment Agreement
These are typically available if your business owes more than $25,000 and/or needs more than 24 months to fully pay off the outstanding payroll tax balance. The biggest drawback with non-express IAs is that you’ll need to provide extensive financial information to the IRS to apply.
Specifically, your business will need to complete IRS Form 433-B, Collection Information Statement for Businesses. Applying online for this installment agreement won’t be an option either.
Streamlined Installment Agreement
A streamlined installment agreement gives you up to six years to pay off your tax debt, but you can only qualify to use this option on payroll taxes if:
- You’re no longer in business and owe $25,000 or less – $50,000 for sole proprietors who are no longer in business.
- You’ve filed all required tax returns.
If you qualify, you don’t have to submit a financial disclosure. Keep in mind that the IRS watches for taxpayers who go out of business, set up an installment agreement, and then start a new business. This is called payroll tax pyramiding, and it can lead to a rejection of requests for payment plans.
Appealing an Installment Agreement Rejection
If you request an installment agreement, but it gets rejected, you can file an appeal through the Collection Appeals Program (CAP). The process for filing an appeal is fairly informal and begins with you calling the phone number located on the rejection letter. If your rejection came from an IRS revenue officer, then you must file your appeal in writing (ideally by completing IRS Form 9423).
Whichever method you use to file an appeal, the appeal must be made within 30 days from the date of the rejection letter. If mailing in the appeal request, it must be postmarked by this deadline.
If you don’t want to file an appeal, you can instead challenge the installment agreement rejection by scheduling a conference with the IRS collection manager. This conference isn’t required to file an appeal, but the IRS recommends doing so.
Defaulting on an Installment Agreement
Missing a payment on your installment agreement will put you into default. If this is your first missed payment, the IRS will usually send you a notice or letter informing you of the missed payment and giving you a chance to make things right. This typically means catching up on the missed payment and paying a reinstatement fee.
If this isn’t the first time you missed a payment, then the IRS might simply terminate the installment agreement and demand you pay the entire remaining balance immediately. If you can’t, you can expect collection enforcement actions that could include tax liens and levies. There’s also a chance you could lose any penalty relief you obtained during installment agreement negotiations.
Tips on Avoiding an Installment Agreement Default
The most likely reason for a default will be missing one or more payments, but there are other reasons a default could occur. To reduce the chances of a default, keep the following in mind:
- File all required tax returns and pay all taxes on time and in full.
- Don’t make plans for spending any expected tax refunds; these will be automatically applied to your tax debt until it’s paid in full.
- Even if a substantial tax refund gets applied to your trust fund balance, still make all payments as originally planned.
- If you move, make sure to inform the IRS by sending them IRS Form 8822, Change of Address.
- Confirm payments by reviewing recent statements or confirmation letters from the IRS.
- If mailing payment, be sure to write your name, address, TIN, daytime phone number, tax year, and return type on the check.
If you can foresee problems with making one or more future monthly payments, it can also help to reach out to the IRS and let them know. This preemptive action reflects good faith on your part and may buy some time before the IRS declares your installment agreement to be in default.
Getting Professional Help With a Trust Fund Tax Installment Agreement
Depending on your situation, you can set up a payroll tax installment agreement yourself. Yet in some cases, you might want the help of a tax professional. Talking to a tax attorney from Damiens Law can help you find the right plan (with the best terms) for dealing with your payroll tax problem, including managing the possibility of a trust fund recovery penalty. To set up a free consultation, contact us today.
Setting Up a Payment Plan for Payroll Tax Debt FAQs
Are there any other options if I can’t use an installment agreement for my payroll tax debt?
If you can’t afford to pay anything, you may be able to get currently non-collectible status or an offer in compromise. However, generally, these options are only available if your business is no longer operating.
Can I use an offer in compromise (OIC) to resolve my payroll tax problem?
It’s possible to use an OIC to settle a payroll tax debt for less than the full amount, but the process may be more complicated due to the trust fund recovery penalty (TFRP) and the IRS’s rules about payroll taxes. Generally, you can only settle the non-trust fund portion of payroll taxes (aka the employer’s matching amounts for Social Security and Medicare, plus Federal Unemployment Taxes).
However, if the IRS isn’t able to collect the trust fund portion of payroll taxes, the agency may apply the TFRP against individuals associated with the company. If one or more individuals get an offer on the TFRP, the IRS will go after any other responsible parties for the remaining portion of the penalty.
If I owe more than $25,000 in trust fund back taxes, can I still apply for an IBTF-Express IA?
Yes, but you’ll have to first pay off enough of your payroll tax debt so that the amount you owe is less than $25,000 by the time the In-Business Trust Fund Express Installment Agreement is officially established.
Do I still have to pay the trust fund recovery penalty even if I set up an installment agreement?
Maybe. If you successfully establish an IBTF-Express Installment Agreement, there’s a reasonable chance the IRS will not pursue a TFRP. Often, the IRS will forgo TFRP collection if a taxpayer enters into an IBTF-Express IA and the unpaid trust fund taxes are only from the current or prior tax year.
If you’re only eligible for a non-express installment agreement, it’s still possible to avoid the TFRP. The IRS may waive its right to collect the TFRP in these situations, but only if you can pay off the entire trust fund tax debt before the Assessment Statute Expiration Date (ASED).
How big will the monthly payments be?
Because trust fund tax debts subject to an In-Business Trust Fund Express Installment Agreement must be fully paid within two years, you should expect the monthly payment for an IBTF-Express IA to be equal to the total payroll amount you owe divided by 24, plus interest.
Sources
https://www.thetaxadviser.com/issues/2015/jul/tpp-july2015-01/ https://www.irs.gov/businesses/small-businesses-self-employed/in-business-trust-fund-express-installment-agreement
https://www.thetaxadviser.com/issues/2015/jul/tpp-july2015-01/
https://www.irs.gov/payments/payment-plans-installment-agreements
https://www.irs.gov/taxtopics/tc202
https://www.irs.gov/pub/irs-pdf/p1660.pdf
