If you have an outstanding tax debt that you can't afford to pay, you might be eligible to set up an installment plan agreement with the Internal Revenue Service (IRS). In many situations, the IRS gives taxpayers the chance to pay their tax liability in installments. If you have a heavy tax burden, always check if the installment option is possible for you. An experienced tax attorney can help you set up a plan with the IRS and ensure you understand your rights.
What Is an IRS Installment Plan Agreement?
An installment plan agreement is a payment plan with the IRS to pay off your tax debt in small chunks, rather than as a lump sum upfront. The IRS puts this type of agreement in place when you request assistance paying off your taxes because you can't afford to pay the entire amount at once. The IRS has short-term and long-term payment plans; the long-term plans (over 120 days) are technically considered installment agreements.
IRS payment plans fall within certain timelines, so you must ensure you can still meet the deadline with your payment plan. If you can't cover your tax liability within the desired time frame, you may need to explore other options.
Do IRS Payment Plans Have Fees?
Depending on the type of payment plan you choose, the IRS will charge you fees.
If you pay the full amount at once, you aren't charged any fees. If you opt for a short-term payment plan (120 days or less), you will have to pay the interest and penalties accrued on the total amount.
If you choose a long-term plan (over 120 days, with monthly payments), your fees range from $31 to $225, depending on how you pay and if you qualify for low-income payments. If you want to change your existing payment plan, the IRS may charge you between $10 and $89.
The IRS always charges interest on late payments as well, even if you've entered into an installment plan agreement. For this reason, the IRS encourages taxpayers to pay off their tax debt as soon as possible.
Which Types of Installment Plan Agreements Does the IRS Issue?
The IRS has more than one type of payment plan. The one you choose will depend on the amount you owe and how long it will take you to pay it back.
Guaranteed
If you owe less than $10,000 in back taxes, you may qualify for a guaranteed installment plan.
What else do you need to qualify for an IRS guaranteed payment plan?
- You are unable to pay your tax debt when it's due or within 120 days
- You can pay off your tax debt in three years
- You've paid your taxes and filed returns the previous five years
- You have not entered into a guaranteed installment plan agreement in the last five years
- You must be able to make the minimum monthly payment, which is the total of your tax debt, interest, and penalties divided by 30
If you have a guaranteed installment plan agreement, the IRS cannot file a lien against your property.
Streamlined
A streamlined installment plan has most of the same qualifications as the guaranteed plan, but the tax debt is higher and you can take longer to pay it off.
What are the details for a streamlined installment plan?
- The total amount of tax debt, interest, and penalties do not exceed $50,000
- You are able to pay off the balance within 72 months
- You can make the minimum payment each year (the total tax liability, penalties, and interest divided by 50)
If you have a streamlined installment agreement in place, the IRS will not file a lien against your property.
Non-streamlined
If you owe $50,000 or more to the IRS, you might be able to get a non-streamlined installment agreement.
What do you need to know about a non-streamlined IRS payment plan?
- You must negotiate the plan with the IRS; the agency won't approve it automatically
- You apply by submitting Form 433-F with information about your income, debts, living expenses, assets, and accounts
- The IRS takes a few months to review and approve/reject your proposed payment plan
If the non-streamlined plan doesn't work for you, you may be able to file an Offer in Compromise with the IRS.
Tax Installment Plan Agreements in California
The Employment Development Department (EDD) in California, one of the state agencies that collects taxes, allows taxpayers to pay their tax debts in installments. You can set up either a short-term installment agreement or a long-term installment agreement by contacting the EDD.
For both types of installment agreements, you can negotiate the terms. You must also make a good faith payment upfront and not be delinquent on your taxes from previous years. The EDD will approve your installment agreement if you can prove that the plan keeps your business from having to close.
Why Set Up an Installment Plan Agreement with the IRS?
If you're having trouble paying off your tax debt, seeking an installment plan agreement should be one of your first options. An agreement with the IRS prevents additional penalties and interest from accruing on your debt. If you still owe taxes to the IRS, it could also offset your future refunds and cause issues when obtaining a loan.
Your tax debt won't go away if you ignore it. The IRS will still try to collect what you owe, which could lead to liens against your property or property seizure. If you want to protect your financial assets and avoid complications later, setting up an installment plan with the IRS is your best option.
If you can't afford to pay off your tax debt right now, the IRS may be willing to work with you to set up an installment plan agreement. If you hire a representative to negotiate with the IRS on your behalf, you're much more likely to reach a favorable agreement. Contact a California Tax Attorney today to set up a consultation and discuss your options for IRS installment plans.