IRS Payment Plans and Installment Agreements
IRS Payment Plans and Installment Agreement
IRS payment plans or installment agreements are agreements between the taxpayer and the IRS wherein the taxpayer agrees to make regular monthly payments to the IRS until the balance is paid in full.
A common question for taxpayers who owe large amounts of money is whether they can make installment agreements. You may be able to get a tax debt under installment agreement if your tax debt has been ongoing for a few years and the IRS has not entered into an installment agreement with you yet.
The default length of any installment agreement is 72 months, or six years. If your tax debt has been ongoing for a few years, then the length of the agreement corresponds to the remainder of time left before your debt expires or reaches its Collection Statute Expiration Date (CSED).
Payment and installment plans
If you owe less than $25,000 in federal taxes, you can apply for a Streamlined Installment Plan with IRS Form 9465. Payments are calculated using a 72-month payment plan or by dividing the remaining time until your debt’s statute of limitation expires into months.
Streamlined installment plans with a total tax debt of $25,000 or less are entitled to a simplified application process, which can be completely entirely online as well.
There are very few forms to fill out in comparison to other tax debt payment plans, and you do not need to submit to a thorough financial checkup. However, the IRS may still place a federal tax lien on your account until your debt is completely paid, or until you have made at least a few back-to-back payments with no history of defaulting.
Streamlined IRS payment plans are an extension of the IRS’s Streamlined Payment Plan, which is for taxpayers who owe between $25,000 and $50,000. These plans offer taxpayers a way to pay their debts in as short a period of time as possible.
If you owe more than $25,000 in debt, you are required to enter into a streamlined installment agreement with the IRS. This means that instead of making voluntary payments, you must agree to allow the IRS to automatically withdraw monthly payments from a specified bank account, or immediately withdraw the monthly installment from every paycheck. Payments are calculated in the same manner as the Streamlined Installment Agreement, meaning that the total debt is divided into 72 individual payments, or however many months are left until your debt expires.
If you owe more than $50,000, the IRS may require a formal Installment Agreement Request and Collection Information Statement. This type of monthly payment plan is only available to taxpayers who owe more than $50,000 in debt.
Because this level of debt is higher, the IRS requires a formal Installment Agreement Request (IAR) as well as a thorough Collection Information Statement (CIS), which includes a complete financial and tax assessment, giving the IRS a better picture of your details and how you intend to pay off your debt.
Non-streamlined installment agreements are a great way to make sure that your business is ready for tax season. But you won’t be able to set it up online, and you’ll have to use physical forms and supporting documents for your CIS. The IRS will usually apply a federal tax lien on your account as well.
The IRS introduced this partial payment program in 2005 as a way for taxpayers to settle their tax debts before their Statute of Limitations expires. Taxpayers will have to provide documented proof of their inability to pay, as well as a letter explaining their current financial situation. The IRS will determine, through a full disclosure of financial documents, the monthly payment amounts. Once the terms of the Partial Payment Agreement are fulfilled, the remainder of the tax debt is forgiven.
If you owe less than $25,000 and are having trouble paying your tax debt, consider a Tiered Installment Plan. This program lets you pay off your tax debt over time with low monthly payments until you reach the agreed-upon amount. The IRS will set these payments for the first year of the agreement, with the payments increasing over time until the agreed pay-off amount is reached.
This program is designed to give low-income taxpayers a chance to get back on their feet and focus on improving their financial situation while still paying down their tax debt and keeping the IRS off their back with additional collection actions.
If you’re in a dire financial situation, you should consider an Offer in Compromise. This is a special installment agreement that can severely cut down what you owe, but with very stringent requirements. To qualify for an Offer in Compromise, you must fill out a special Installment Agreement Request along with a unique OIC-specific Collection Information Statement. The IRS will use the information outlined on this special CIS to determine whether your finances support the offer you have outlined in your request.
Unlike other installment agreements, an Offer in Compromise (OIC) has no strict guidelines on the taxpayer’s end. However, the IRS can choose to accept or discard your offer.
To create an OIC, you must determine your own Reasonable Collection Potential (RCP). This is effectively the sum of every liquid asset you possess, along with the quick sale value of every property you own, and your current disposable or net income (anything earned after taxes), with very few exemptions.
Your RCP is based on your current financial situation and includes both income and expenses. It does not include any outstanding debts, including unpaid taxes.
IRS Loans and Debt
The IRS calculates the amount of your monthly payment based on your income and the allowable monthly expenses. They also take into account how much time is left in your statute of limitations.
A tax debt expires after ten years plus tolling from its tax assessment date – the date on which the IRS determines the debt, not the date on which you received your notice of tax debt.
As such, most installment agreements generally fit into a tax debt’s total lifespan. If your tax debt is significantly older, you may be entitled to different payment options. It’s important to work with a professional to determine which type of plan is best for you, and how to proceed.
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