Owing money to the IRS can be stressful, so it’s best to fulfill your debt with an IRS payment plan. How do you go about this? Here are your options and how you can make your payments more convenient with these installment agreements.
IRS Payment Plans: What Are Your Options?
1. Guaranteed Installment Agreements
The IRS designed the guaranteed installment agreements for people who owe them $10,000 or less. These taxpayers must’ve filed all their tax returns to qualify for the agreement. They must also agree to pay off the balance in 36 months or less, and there can’t be any other installment agreements on their record for the past five years. People who want this agreement must also promise to pay future tax debts on time.
2. Streamlined Installment Agreements
People who owe $50,000 or less may be eligible for the streamlined installment agreement. The IRS designed this plan for people who need up to 72 months to pay off the debt. They must’ve all their tax returns filed to be eligible. They must also agree to file their future tax returns on or before the deadline and ensure the debt will be paid on time in the future.
3. Partial Payment Installment Agreements
For people who can’t afford the payments calculated under the guaranteed installment or streamlined installment agreements, the partial payment installment agreement is the next option. Here, payments are determined based on what the person can afford. The IRS will look at factors such as living expenses and income when determining payments.
To qualify for this option, you’ll have to report your income and living expenses to the IRS. You also need to provide documentation to support your claims. Do know that the terms of the partial payment installment agreements will be reviewed by the IRS every few years as there are agents checking if you can afford to pay more each month.
4. Non-Streamlined Installment Plans
For people with large tax debts, the above plans might not work. The non-streamlined installment plan may be a better choice. This option works for people who owe the IRS more than $50,000 in taxes, those who need more than 5 years to repay tax debts or those who aren’t eligible for the other plans.
These plans must be worked out individually with an IRS agent. People who want to qualify must provide financial documentation to back up their claims. You may also be asked to sell assets or take out loans from a bank.
3 Ways IRS Payment Plans Save You Money
- The Guaranteed and Streamlined Agreements can help protect you from a federal tax lien. If you have large unpaid tax debts, the government can notify your county and put a tax lien on your name. This will affect any sale of your property, such as your house or car. The government will use the lien to collect payment for themselves from your profit. The IRS also reports this lien to credit bureaus where it can impact your credit scores. When this happens, you might receive higher interest rates on loans, costing you more in the future. These payment plans can protect you from this.
- The IRS payment plans can help you manage your finances better. As long as you have unpaid debt, the IRS will be calculating penalties and interest. With a payment plan, they calculate the exact amount you owe and divide it into monthly payments. This makes it easier to budget and spend your money more efficiently.
- You can begin to reduce your payments. Since you will pay off your debt little by little each month, you will also reduce the number of additional penalties and interest you accrue on the debt. This can reduce the total amount you pay, hence, saving you more money.
Here are some tips on how you can set-up a payment plan online with the IRS:
No one wants to owe money to the IRS. If you have a big tax debt, an IRS payment plan will be your saving grace. Understanding your options can help you stick to a lighter repayment plan and pay off your debt completely. Plan your financial future carefully. A good payment plan can help you get your financial health back on track.
Have you tried an IRS payment plan? If yes, what plan did you get for yourself? Sound off in the comments below!