You have therefore received the advice that every taxpayer dreads: you owe the government money! Fortunately, the IRS allows qualified taxpayers to pay their debts through a installment agreement.
Being hit with a hefty tax bill can be stressful, especially if you’re unfamiliar with the refund options available. Although the IRS always prefers that you pay your taxes on time, it offers solutions to reimburse IRS back taxes.
To help you understand the best plan for you, we’ll cover the different types of installment agreements available, their terms, and who qualifies for these IRS payment plans.
What is an Installment Agreement?
An IRS installment agreement is one of the easiest and most popular methods of paying off old debt. It allows you to repay your tax debt in monthly installments.
These IRS payment plans give you an extended period to avoid tax leviesbut tax penalties and interest will continue to accrue on your debt until the balance is paid in full.
If you think you can pay off your tax debt with a little more time, an installment agreement may be right for you!
Types of Installment Agreements
It’s a relief to know that you have options for paying off tax debt, but it’s important to understand what type of installment arrangement is right for you. The answer highly depends on how much debt you owe and how long you will need to pay it off in full.
Guaranteed payment agreements
The IRS must accept qualifying applications for installment arrangements if you meet the following conditions:
- You have to $10,000 or less
- You filed on time in the past 5 years
- You haven’t had an installment agreement in the last 5 years
- You can pay the full balance within 72 months or by the expiry date of the recovery law
One of the significant benefits of this agreement is that it prevents the IRS from placing a federal privilege or levy against you for your unpaid debt. Taxpayers are also not required to provide additional financial information if their balance is $10,000 or less.
IRS Simplified Remittance Agreement
If you qualify for a Guaranteed Installment Agreement, chances are you will also qualify for the Simplified Installment Agreements offered by the IRS.
Here are the requirements for a Simplified Installment Agreement:
- You have to $50,000 or less
- Full balance can be paid within 72 months
- The proposed monthly payment is equal to or greater than the minimum acceptable payment
What is the minimum acceptable payment?
The IRS determines your minimum payment by dividing the total balance owing by 72 months. If the expiration date of your collection law is earlier than this date, the IRS will divide the debt by the number of months you have left to pay.
Example: John owes the IRS $35,000 for the previous tax year.
$35,000 (amount owing) ÷ 72 months = $486 per month
John’s acceptable minimum payment would be $486.
Partial Payment Installment Agreement (PPIA)
If you are in a situation where you have very little disposable income, don’t worry, there is a plan for you!
Typically, IRS Partial Payment Plans benefit low-income people for a variety of reasons. It allows you to stay in good standing with the IRS by making smaller monthly payments based on your ability to pay. Unlike previous installment agreement options, you must provide additional financial information for approval.
To be eligible, you must submit Form 433-F (Collect Information Statement) to report your income and living expenses. The IRS checks to see if you have assets that can help pay off most of your debt and may request additional information.
Although this IRS payment plan can be a great option, if approved, you must submit financial information every 2 years, which can lead to increased monthly payments. Payments on a PPIA continue until the balance is paid in full or the balance expires due to CSED.
If you think a PPIA may be right for you, we recommend speaking with one of our tax debt lawyers to help you achieve the lowest possible monthly payment!
Non-simplified installment agreement
If you owe up to $250,000 and can make monthly payments, a non-simplified installment arrangement may be right for you. Unlike some other options, this installment arrangement is not automatically guaranteed. It is also only available for individuals; businesses are not eligible for IRS non-simplified installment arrangements. The IRS will also file a Notice of tax lien as a condition of the agreement.
If you want to avoid an IRS lien, you may consider paying off some of your debt so you can qualify for a simplified installment arrangement instead.
How to make installment payments
You have several options for making your monthly payments to the IRS.
Payments by installment agreement can be submitted via:
- Debit
- Credit card
- Withholding wages
- Check or money order
Can the IRS revoke an installment agreement?
Once you have an installment agreement with the IRS, you must make each payment on time. If you don’t, the IRS may terminate your payment plan.
The IRS may terminate an installment arrangement for the following reasons:
- You missed a payment
- You fail to file tax returns on time or pay taxes in a timely manner after entering into the agreement
- Information Provided on Form 433-F Was Inaccurate
- You are under a partial payment contract and your financial situation has changed
If you do not comply with any of the terms of your installment agreement, the IRS will notify you in writing and give you 30 days to comply.
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