IRS Payment Plan
It’s beyond cliche to say the only two guarantees in life are death and taxes. However, just because taxes are something you can count on every year, there’s no assurance that you can always pay them. In such a case, you’ll likely need to enter into an IRS payment plan, sometimes called an installment plan. This allows you to break up the amount owed into smaller increments that are paid monthly with minimal fees and interest. In many cases, an IRS payment plan calculator can help determine your monthly payment. This will ensure it fits in your budget and the required timeframe to pay off the tax debt.
What Is an IRS Payment Plan?
There may be times that you are unable to pay the taxes you owe. This can be due to a higher than expected tax burden or a change in your living circumstances. Instead of not paying your taxes, which is an illegal act and can incur harsh financial penalties, you can arrange with the IRS to pay what you owe in monthly installments.
The financial penalties you risk by not paying your taxes could include wage garnishment, bank accounts seizure, or property loss, such as your home. The specific type of penalty will depend on a variety of factors. This includes, how much you owe and whether you’ve filed taxes as required. Generally, the IRS is more lenient in situations where you’ve filed your taxes but cannot pay than situations where you’ve avoided filing taxes.
This leniency can be seen in the interest the IRS charges on unpaid debt. Even in an agreed-upon payment plan, you will have to pay interest on your debt to the IRS. If you’ve filed your taxes and are simply unable to pay what you owe, you’ll likely have to pay an interest rate of 0.5% of the total unpaid debt each month.
Not filing your taxes, however, could make cause the interest you’re expected to pay to be ten times that rate. Depending on the circumstances, you could even find yourself paying interest as high as 25% each month if you never filed your taxes.
It is hard to come up with a potential situation where not filing your taxes will leave you in a better place than filing and working out a payment plan with the IRS. This is why most people choose to work with the IRS to come up with an appropriate payment plan.
How Do You Qualify for an IRS Payment Plan?
There are several different types of payment plans to which the IRS may agree. Some are straight-forward, while others are more complex.
Guaranteed Installment Agreement
The simplest and quickest payment plan is called the Guaranteed Installment Agreement. The IRS will automatically agree to this plan when requested if certain qualifications are met:
- The total balance owed is less than $10,000, including penalties and interest
- Can pay the total balance within three years
- Have filed all required returns
- Haven’t had an installment agreement within the past five years
Streamlined Agreement Plan
If you owe $50,000 or less, you may qualify for a streamlined agreement plan. However this does not include penalties or interest and you must pay the amount owed within six years. For balances over $25,000, you’ll also have to agree to direct debit payments. It can be advantageous to pay off a portion of the balance so it falls below $50,000, that way you can be eligible for this type of agreement and avoid the more complex installment arrangements.
Minimum Monthly Payments
With either of the plans listed above, you may be able to pick how much you pay back each month. This is dependent on your ability to pay back the amount owed within the required time frame. An IRS payment plan calculator can help you determine a suitable monthly payment.
Other Payment Plans
Should you not qualify for either of the above plans, there are other payment options available to you. However, the IRS will likely need you to provide them with financial information to determine how much you can pay each month. It’s also possible they may require you to sell some of your assets to pay down your total balance before they agree to a payment plan.
How Do You Apply For an IRS Payment Plan?
If you plan on paying your tax debt within 120 days and owe less than $100,000 in taxes, penalties, and fees, you can apply for a payment plan with the IRS through their website. You can also apply online if you need more than 120 days to pay off your tax debt, owe less than $50,000 combined, and have filed all your required tax returns.
When applying online, you’ll need to make sure you have all the needed information and materials:
- Your name as listed on the most recently filed tax return
- A valid email address
- Your address from the most recently filed tax return
- Your date of birth
- The fling status
- Your social security number or individual tax identification number
You’ll also need to prove your identity. This can be done through a financial account number, a mobile phone number that’s registered in your name, or an activation code sent by the IRS to your address through the postal mail.
If needed, you can also apply through a phone call or in-person appointment. However, these methods often incur higher set-up fees. This is true especially if you plan on taking more than 120 days to pay your taxes or choose not to pay through automatic withdrawals.
Do You Need a Tax Attorney for an IRS Payment Plan?
Taxes are complicated, and the IRS is not always correct in their assessment of how much you owe. To best advocate for yourself, hire a tax attorney. They can help assess the situation and strategize ways to minimize the amount owed. A tax attorney can also enter an IRS payment plan on your behalf.
Work With an Experienced Local Tax Lawyer
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