An Installment Agreement Could Help Reduce or Eliminate Tax Penalties and Interest. S.H. Block Tax Services Can Help.
Owing a tax debt to the Internal Revenue Service can cause an enormous amount of stress. If you are facing levies or wage garnishment, but cannot pay the tax liability that you owe, the IRS offers different programs to help you resolve your tax debt.
One of these programs is called an installment agreement, and it works by allowing you to make monthly payments to the IRS like you would for a home mortgage or a car loan.
If the IRS agrees to accept a series of smaller monthly payments from you, and you stay up to date on those payments, they will stop trying to seize your property or garnish your wages. Installment agreements can make your debt manageable and give you freedom from aggressive debt collection tactics.
An experienced tax professional can help by negotiating on your behalf, and making sure that your payment plan is realistic. If you owe $10,000 or more to the IRS, it’s very important that you speak with licensed professional, like a tax attorney, to help you resolve your debt.
How Does an Installment Agreement Payment Plan Work?
One of the great advantages of an installment agreement is that there is only one eligibility requirement, and it’s very standard: you must be current on filing all your tax returns.
For IRS payment plans, there are three types:
- Pay now: For taxpayers who can pay the full amount right now, this is a zero-fee and zero-penalty or interest option.
- Short-term payment plan: If you can settle your debt in 180 days or less, this is your best option. It has zero fees, but interest and penalties still accrue until your debt is repaid.
- Long-term payment plan (installment agreement): This type allows you to make monthly payments, sometimes over a period of ten years, but more commonly around 72 months. If you can pay through automatic monthly payments from your bank account (direct debit), the fee is $31. For other payment types, the fee is $130. Fees may be waived for reimbursed for low-income applicants. There are additional fees for paying by debit card or credit card. Interest and penalties apply until the amount is paid off.
The IRS will allow you one late payment per year, but after that you may be in default on your installment agreement. If that happens, the IRS may start aggressive collection actions, such as levies, liens, wage garnishment, and more.
If you are at risk of missing your monthly payment, and defaulting on your installment agreement, talk to a tax professional like S.H. Block in order to see what the best course of action is.
What Will My Monthly Payment Be?
The amount you owe the IRS will partially determine what kind of monthly payment you must make to pay back your tax debt.
If you owe less than $10,000, you do not have to submit a financial statement. You may qualify for a “guaranteed installment agreement” to pay off your debt, with monthly payments equal to the total debt divided by the 36-month payment plan.
For those owing up to $50,000, there is an option called a “streamlined installment agreement.” This is a payment plan to pay off your debt in 72 months, and the monthly payment is the tax liability divided by 72 months. For a tax liability of $25,000 to $50,000, the payment must be made by direct debit.
If you don’t qualify for those types, you can choose a routine installment agreement. Your minimum payment is something you can negotiate with the IRS, although the IRS will thoroughly review your assets, income, liabilities and expenses to determine if that payment offer makes sense. Without the help of a tax professional, many people find themselves in a situation where they agree to a higher monthly payment than they can handle, putting them at risk of default.
There is also a small fee of $10 to make changes to an existing installment agreement online, even if you are only changing your IRS payment plan to direct debit payment plan from your savings account or checking account. The fee for changing payment plans by phone is much higher at $89.
RELATED POST: Understand Your IRS Agreement So You Can Avoid Default
Partial Payment Agreement
It is also possible to partially pay off your tax debt, and then have the rest of the debt forgiven. There is a time limit to the IRS collection of your tax liability, a statute of limitations known as the Collection Statute Expiration Date or CSED. It is normally ten years after the tax is first assessed.
If you owe $10,000 or more in taxes, penalties and interest, you may be able to get the IRS to agree to a partial payment installment agreement, where you make monthly payments until the close of the installment agreement, at which point the remainder of the tax debt is forgiven.
For this particular option, it is very important to work with a tax attorney like S.H. Block Tax Services. Calculating your minimum payment amount is an important equation to get right, and defaulting on this installment agreement can have serious consequences. As you can imagine, the IRS will scrutinize your finances very carefully before agreeing to an amount less than you owe.
Let S.H. Block Tax Services Negotiate Your Installment Agreement with the IRS
At S.H. Block Tax Services, negotiating an installment agreement is one of our most common tax relief strategies. Our staff has the knowledge and experience to know what the IRS will accept in each situation and can negotiate an installment agreement payment plan that works for you.
To learn more, please complete the form to the right to schedule a free consultation and discuss the specific details of your unique situation. You can fill out our online contact form or call our office at (410) 793-1231 anytime with your tax questions and concerns.
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.