Taxpayers can pay off their tax debt to the Internal Revenue Service (IRS) via an installment payment system. Despite this, immediate payment is the best option, considering that it doesn’t attract interest and penalties, which could rise to 8-10% annually.
An installment agreement comes handy in cases where a one-off tax debt settlement is impossible. This alternative comes in four different forms;
- Non-streamlined payment
- Partial payment
- Streamlined payment
- Guaranteed payment
Guaranteed Installment Agreement
Here are the conditions an applicant for a guaranteed installment agreement must meet;
- Have a debt of less than $10,000, excluding penalties and interests;
- Must not be a party to an existing installment agreement, have the total owed taxes settled, and filed tax returns;
- Must be unable to settle the tax liability in the space of 120 days or when due;
- Must be ready to pay off the tax liability in the space of three years; and
- Must be ready to offer at least the minimum monthly payment, i.e., tax liability, penalties, and interests divided by 30;
This payment plan doesn’t allow the IRS to file a federal tax lien against the taxpayer.
Streamlined Installment Agreement
The qualification conditions for the guaranteed agreement and streamlined installment agreement are similar. However, the specific conditions for a streamlined installment agreement are as follows;
- The tax liability, penalties, and interest must not be more than $50,000;
- The balance is payable in the space of 72 months; and
- The planned payment is not less than the “minimum acceptable payment,” i.e., the amount greater of $35 or the minimum payment amount reached when the interest, penalties, and tax liability are combined and divided by 50.
A setup fee is compulsory and payable by the taxpayer. This will be used in setting up the installment agreement. Alternatively, a reduced fee can be paid for a direct debit installment agreement. Also, a different fee is payable for reinstating or restructuring an existing installment agreement. Lastly, the IRS does not file a federal tax lien.
Partial Payment Installment Agreement
With this agreement, taxpayers and the IRS can legally agree on the partial payment of tax liability. The first step is the completion of a financial statement by the taxpayer by using Form 433-F to report income and living expenses. The information submitted is reviewed and confirmed by the IRS. The IRS may demand more information from taxpayers who have assets that can be disposed of to offset a part of the tax debt. If the request for a partial payment installment arrangement is approved, the taxpayer will have to undergo a financial review once every two years. From the findings of the review, the IRS may increase the installment payment or terminate the agreement.
Non-Streamlined Installment Agreement
The non-streamlined agreement is ideal for taxpayers owing $50,000 or more and ready to pay monthly to the IRS. This agreement has no qualification conditions. Hence, the taxpayer must enter into negotiations with the IRS. Likewise, the taxpayer is expected to file Form 433-F, Collection Information Statement, through which they provide information about accounts, assets, living expenses, debts, income. The taxpayer can also propose an installment payment amount they can afford via the form.
After reviewing the information provided and the proposed payment plan, the IRS will either refuse or approve it. Conditions for refusal include the provision of false information, irrelevant living expenses, or failure to complete a previous installment arrangement.
If this doesn’t work, a taxpayer may consider filing an Offer in Compromise.
How does a taxpayer make payments?
Here are the available payment methods for taxpayers looking to make installments;
- Online Payment Agreement (OPA)
- Credit cards
- Payroll deduction
- Electronic Federal Tax Payment System (EFTPS)
- Money order or check
Conditions for Revoking An Installment Agreement
The circumstances listed below may warrant the cancellation of an installment arrangement by the IRS;
- Missing a payment by the taxpayer;
- Failure of the taxpayer to pay taxes or file a tax return despite a valid agreement;
- Provision of false information on Form 433-F by the taxpayers;
- The review of an existing partial payment installment agreement that indicates a change in the financial position of the taxpayer.
Having Issues Paying Your Taxes? We can help
It’s never a good idea to approach complex financial decisions without sound advice from people who really understand the choices you’re weighing. That’s why we are here to give you the resources to reach the best possible understanding with the IRS. If you need help setting up an installment agreement for new or previous tax years, contact Anthem Tax Services today to find out how you can pay off your tax debt overtime.