IRS Urged to Improve Direct Debit Installment Agreements to Avoid Taxpayer Defaults
Many times I get a call from taxpayers who were previously installed into a payment arrangement with the IRS. They call for help because their payment plan defaulted. This causes many different problems for taxpayers. One the IRS may not reinstate the plan and requires a large sum of money put down to enter into a new plan. The state of Maryland can flag your driver’s license and make you pay upwards of 25% down of your entire debt.
The big rule that I always stress is file and pay on time or at the very least file on time. You are on a probationary period after you enter into terms on your IRS or state debt. They are watching you for the next five years. If you fail to file or pay you can have your Offer in Compromise, Installment Agreement, or other payment arrangement default.
A way to avoid owing the IRS if you are a W2 employee is claim the correct amount of dependents on your W4. Sometimes we even suggest claiming a lesser amount to ensure you don’t owe taxes. If you have 3 individuals who you will claim on your return for the year, don’t put 6 or exempt on your W4 this is a recipe for debt. If you are single and don’t claim head of household don’t claim three, this is not the appropriate withholding especially for someone on a probationary period.
Another strong suggestion I give my clients is to set up a direct deposit with your agreement. You are less likely to miss a payment and help ensure your compliance in your mandated agreement. I say out of sight out of mind. If you have that auto debit set up you won’t miss that money.
All this being said still some people default on their agreements. How can the IRS help insure you stay in your agreement even with a small slip up? One way is to implement new procedures.
TIGTA recommended that the IRS consider establishing systemic programming to allow DDIA taxpayers who incur a new unpaid tax liability to absorb the new liability into the current agreement without stopping the automatic payment in qualifying situations
The bottom line is take all precautions to file and pay on time. Do your best not to default on your agreements with the IRS or state. If you found you have defaulted and IRS is asking for a large sum to reinstate, it may be time to seek assistance from an attorney.