What Is an IRS Installment Agreement?
The IRS works with taxpayers to develop installment agreements that allow them to pay their delinquent balance over time and get back into compliance with both the IRS and the State of Maryland. If you enter into one of these installment agreements, you can choose how much you pay each month as long as you pay off the full amount within six years.
Installment agreements offer a great opportunity for you to pay your taxes in full on a set timeline, and they can help you avoid liens, levies, garnishments, and other potential negative consequences. However, making late payments or missing payments altogether can put you into default, which can lead to trouble.
Understanding the Details of Your IRS Installment Agreement
There are three main types of installment agreements:
- Short-Term Payment Plan: If you can pay your delinquent balance within 120 days, then a short-term plan is the best solution. You can apply online or by phone, mail, or in-person with no setup fee, and you can make payments by check, money order, or debit/credit card. There are fees attached for debit/credit payments, and penalties and interest continue to accrue until the balance is paid in full.
- Long-Term Payment Plan: If you need to pay over a timeframe that exceeds 120 days, then you’ll need a long-term payment plan. Different long-term payment options have different associated fees.
- Automatic Withdrawals: Long-term plans with automatic withdrawals are also known as direct debit installment agreements (DDIAs). These plans require a $31 setup fee when applying online and a $107 fee for plans created over the phone, by mail, or in-person. The IRS waives setup fees for taxpayers whose adjusted gross income is at or below 250% of the federal poverty level. However, penalties and interest continue to accrue until you pay the balance in full.
- Non-Automatic Withdrawals: Long-term plans using non-direct debit payment methods require a $149 setup fee when applying online and a $225 fee for plans created over the phone, by mail, or in-person (for both fees, you can receive a $43 reimbursement if you qualify as a low-income applicant). Penalties and interest continue to accrue until you pay your balance in full.
- Restructuring/Reinstating an Existing Payment Plan: There is an $89 fee to update existing plans regardless of which application method you choose, but as with some other plans, you could receive a $43 reimbursement if you qualify as a low-income applicant.
The Consequences of Defaulting on Your IRS Installment Agreement
If you make a series of late or partial payments or you fail to make payments altogether, the IRS may consider you to be in default, in which case they’ll terminate your payment agreement. The IRS will usually allow the occasional late payment, but once you begin to exhibit a pattern of missed or late payments, they can place you in default without warning. Typically, this happens around 60 days past the due date of the payment you missed.
When the IRS decides you’re in default, they won’t necessarily send you a notice. You might not even know they’ve terminated your agreement. It’s also important to know that the IRS reserves the right to terminate your agreement if you incur additional tax debts at any point during your repayment period, even if you’ve been making your payments on time.
Once you’ve defaulted on your installment agreement, the IRS may take more aggressive measures to collect on the balance you owe, including garnishing wages, placing a lien on your property, or even seizing assets to satisfy the debt. To avoid this, contact the IRS agent assigned to your case as soon as you learn you’re in default. In many cases, you can work with the IRS to adjust your payment amount based on your income or financial situation. For example, if you or your spouse has recently lost a job, you can give your assigned agent proof of the change in your income and request a lower payment.
The best way to avoid defaulting on your installment agreement is to set up automatic payments. This might force you to tighten your monthly spending, but if you create and adhere to a reasonable budget, you should be able to make your payments on time and get back into compliance with the IRS.
Contact S.H. Block Tax Services for Help Structuring Your IRS Payment Plan
At S.H. Block Tax Services, our attorneys and support staff have decades of experience helping people resolve their tax liabilities and then creating proactive plans that make it easy for them to stay in compliance. During our time representing Maryland taxpayers, we have earned the trust of our community, and they’ve given us an A+ rating with the Better Business Bureau. If you or someone you know is struggling with unpaid or unfiled tax returns, please contact us today by calling (410) 793-1231 or completing this brief form to schedule a free consultation.
Remember, the IRS and the State of Maryland are within their rights to ramp up collection measures once you’ve defaulted on an installment agreement, so please contact us today to avoid further consequences to your income and property.
The content provided here is for informational purposes only and should not be construed as legal advice on any subject. Please read our full disclaimer here.