Are you having difficulties paying your back taxes? Requesting an IRS installment agreement might a good option for you, so read on to know more about it.
In this article:
- Taking Advantage of the IRS Payment Plan
- What Is an IRS Installment Agreement?
- Guaranteed Installment Agreement
- Streamlined Installment Agreements
- Partial Payment Installment Agreement
- Non-Streamlined Installment Agreement
- What Is a Federal Tax Lien and How Can It Affect You?
- How to Get Started
What to Know About the IRS Installment Agreement
Taking Advantage of the IRS Payment Plan
When you owe money to the IRS, it may be more than you can afford. If you are unable to make your tax payment before the filing date, you will probably need to take advantage of an IRS payment plan.
This may leave you wondering which type of IRS installment agreement will work best for your situation.
What Is an IRS Installment Agreement?
When you enter a payment agreement with the IRS, you pay your tax debt little by little by filling out an installment agreement form. It is important to note that you will be charged between 8% and 10% interest per year, so if you have the funds to pay by the filing deadline, that is likely your best option.
If you find yourself unable to pay, you have to choose one of the available IRS installment agreements.
You will be able to make your payments through check or money order, direct debit from your bank account, the EFT payment system, through payroll deduction, or by using a credit card through the online payment option. It is vital to remember that if payments aren’t made, you misrepresented information on your taxes, or you fail to pay your future taxes, the payment agreement can be revoked.
Guaranteed Installment Agreement
If you owe $10,000 or less to the IRS, you may qualify for a guaranteed installment agreement. To qualify, you must:
- Have filed all your returns
- Have had no installment agreement in the previous five years before applying
- Have agreed to pay off your debt within three years
- Have not paid late in the most recent five years
These agreements are the most appealing because the payments are lower and you will not have a federal tax lien against you for payment of your outstanding taxes. This can help prevent your credit from taking a hit.
Additionally, if you have property to sell that is under a lien, the IRS would receive payment of what they are owed first before you can receive any profit.
Streamlined Installment Agreements
For those who don’t qualify for a guaranteed agreement, a streamlined installment may be the next best option. If your IRS debt is $50,000 or less, you may qualify.
Under this plan, you will be required to pay off your debt in six years or less. As with all other agreements, you will need to continue to file and pay your taxes on time while you are making payments.
These offer the same benefit of a guaranteed agreement, in that they will not result in a federal lien against your property as long as you don’t default.
Partial Payment Installment Agreement
If the other agreements will not work with your budget, another option is to apply for a partial payment installment agreement. With this form of agreement, you make a monthly payment based on what you can afford, after all of your monthly bills have been paid.
The primary difference between these types of agreements and guaranteed and streamlined ones is that the IRS may file a federal lien to help ensure they collect the full debt, but you will enjoy a longer repayment period. Before being approved, you will have to fill out some financial statement forms so the IRS can calculate an average of living expenses and help determine the payment amount.
You will also have to provide bank statements to show what you own in assets.
Non-Streamlined Installment Agreement
For IRS debts in excess of $50,000, it will be necessary to negotiate an installment plan with the IRS. These can also be optioned if you need a repayment plan that is longer than six years, or if you don’t meet the requirements for the other plans.
After negotiating with an IRS agent, an IRS manager will need to review and approve it. They will then request your financial statements as well as proceed with a federal lien against your property.
What Is a Federal Tax Lien and How Can It Affect You?
A federal tax lien is a lien against your property in the amount of what you owe for your taxes. If any property is sold under the lien, the amount that is owed to the IRS will go directly to them before you see any of the profits.
When a lien is filed, it will also negatively affect your credit, making it difficult for you to borrow money from banks. The lien will expire after ten years, but otherwise can only be removed if the debt is paid or the IRS releases it for another reason.
How to Get Started
If you cannot meet your tax obligation, you will need to file Form 9465 to request an installment agreement with the IRS. If you are unsure on which agreement is best suited to your situation or which one you qualify for, you can contact a tax attorney or a certified public accountant.
This is also advisable if you need someone to negotiate on your behalf. It is your responsibility to meet your tax obligation.
Don’t let the inability to pay your taxes get you in a situation where you can lose your property and your assets. Find a payment agreement that can work with your financial situation to repay the debt before it interferes with your life and your future goals.
If you need help filing an agreement or deciding the best option, contacting a tax attorney may be your best course of action. They can help you determine the best method for repayment, negotiate with the IRS on your behalf, and make sure you follow all the necessary guidelines so you do not end up in default.
Requesting an IRS installment agreement to pay your back taxes can help you get through your tax problems if you faithfully follow the terms and conditions and don’t forget to pay your current liabilities on time. The process can be complex at some points, but it assures the government you are being a responsible taxpayer.
How was your experience with the IRS installment agreement? Tell us in the comments section.
If you owe back taxes, visit taxreliefcenter.org for more information on tax relief options.
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- When To Use An IRS Payment Plan Form
- 5 Standard Tax Deductions for Retirees and Seniors