Are you having trouble making the IRS’ required lump-sum payment of all unpaid taxes? There are several ways you might satisfy your tax obligations to the IRS. You will likely hear about installment agreements the most regarding IRS payment plans. The ability to prevent wage garnishment and bank levies attracts a lot of interest from potential customers. You may have a ton of inquiries concerning this tax debt settlement, and you are not alone.
The IRS provides this opportunity simply because they know that some taxpayers might not be able to pay their entire debt at once (due to financial hardship or other reasons). Many people take advantage of this program every year, although only some are eligible for an installment agreement immediately.
Let’s take a closer look and explore this payment plan’s fundamentals and in-depth information.
Understanding IRS’ Installment Agreement
Using the IRS Installment Agreement payment plan, you can pay your tax debt in a series of regular installments. As a result, rather than spending your taxes in total upfront, you will do so in smaller amounts over several months or even years. You can save money on the IRS by using an installment arrangement to avoid paying additional fees like fines and interest. Additionally, the debt will be broken into smaller payments, making it easier financially for you.
Before or after filing a Notice of Federal Tax Lien on your properties, the IRS might agree to this agreement with you.
If your request for an installment arrangement is granted, the IRS will send you a notification outlining the monthly payment amount and the time frame for paying off your balance.
How Much Can You Afford to Pay?
Finding out how much you can afford to spend is the next step. The IRS advises saving 10% to 30% of your net monthly income and including it with your application for a payment plan. However, request a lesser proportion if that number is more than you can reliably handle. If it’s still too much, consider asking for a longer-term installment agreement plan (like 60 months), so you can make payments less frequently and/or at smaller intervals.
Now that you know how much you expect to owe each month, you need to consider if this amount fits within your spending limits. The last thing you want is to owe money in taxes again!
Don’t hesitate to contact one of our tax consultants immediately if you need assistance figuring out how much may be paid each month without placing an undue burden on yourself or your family.
Types of IRS Installment Agreements
An installment agreement doesn’t sound all that bad now that you bring it up. Additionally, the government has a variety of choices to make. One of them might be appropriate for your particular tax situation.
- Guaranteed Installment Agreements
A guaranteed installment arrangement is an alternative, and you might be swiftly accepted for the plan if your tax debt is $10,000 or less. Just be sure you meet the necessary conditions.
- Filled out all of your prior tax returns.
- For the five years prior, you filed or paid your returns on time.
- In the five years prior, you did not receive approval for the installment agreement plan.
- You have three years or less to settle the entire sum.
- Streamlined Installment Agreement
With a streamlined installment arrangement, the maximum amount of taxes that may be owed is increased to $50,000; this sum excludes any penalties or interest. You must be able to pay the whole sum within six years to be eligible for this arrangement.
- Installment Agreement for Tax Debt over $50,000
Only taxpayers who owe more than $50,000 in past taxes are eligible for this option. The IRS carefully examines your financial status to quickly manage and settle your unpaid taxes.
For this type of arrangement, it is advisable to communicate with a certified tax debt relief specialist who can advise you appropriately, accurately assess your situation, and customize the best approach and negotiations with the IRS.
- Partial Payment Agreement
Depending on several considerations, the IRS may suggest a partial payment plan if you cannot pay your total tax burden. The IRS agents assigned to your case may reevaluate your eligibility every two years since financial situations change.
There is typically a due date for the last payment with partial payment plans. After then, you won’t be mandated to make any additional payments.
Qualifying for the Installment Agreement Plan
You can spread out your tax payments using the IRS’s Installment Agreement service. You must submit Form 433-D, which can be done online or by mail, to request this arrangement (the IRS will notify applicants of their acceptance or denial). Before establishing an installment agreement, any remaining concerns with your account must also be resolved.
You will be notified of the monthly payment amount and the time frame for paying off all outstanding obligations once your application for an installment plan has been approved. To avoid further penalties that could raise their overall balance owed, taxpayers must make regular payments on time and maintain an accurate payment history.
Keeping Track of Your Tax Debt While on an Installment Agreement
You must make payments per the terms of your installment contract. This requires timely and complete payment.
If you cannot make the agreed-upon payments, contacting the IRS is necessary to set up a new payment agreement. It’s essential to know that the amount owed can also include interest and penalty fees. Two months after the due date, interest starts to accrue on the unpaid debt at a rate of around 6% per year, and it continues to do so for the remainder of the installment plan until the whole amount is paid.
If you find yourself in financial difficulty due to continuously settling your outstanding debt, you should notify the IRS right. They may decide to suspend collecting after considering your circumstances.
If you do not notify the IRS and discontinue paying, they will resume their aggressive collection efforts. You also risk having your assets and/or bank accounts seized. Remember that getting tax debt relief is the key objective here.
Hire a Qualified Tax Debt Relief Professional
If you need to apply for an installment agreement, you may wonder whether it’s worth hiring a tax professional. The answer is: yes!
The reason that it’s so critical to hire a tax professional because the process of applying for an installment agreement is complicated and can be confusing. If you have all the information you need about your situation, it will be easier for you to complete the application honestly and accurately. A tax professional can help ensure that all your information is correct before submitting your application.
Additionally, if there are any mistakes on your application, then the IRS may reject it—and no one wants to deal with rejection from the IRS!
Finally, if you do end up having issues with your installment agreement after submitting it (such as falling behind in payments), then a tax professional will be able to help guide you in resolving these issues so that they don’t become more significant problems later on down the line!
Installment Agreement: Paying Your Taxes Over Time
Keep in mind that work is still to be done before you get thrilled. Now that you are familiar with the fundamentals of an IRS installment agreement ask yourself these three questions: Can I manage to pay this off piece by piece? Would handling it myself be preferable? And do I have the resources to complete an application effectively?
You can now decide with confidence in light of this understanding. The key is that there is more than a one-size-fits-all method for creating installment agreements. Do it without delay if you apply for an installment agreement.
Contact our knowledgeable tax specialists today to schedule your free tax assessment!