What is an IRS Installment Agreement?
An IRS installment agreement is an agreement between a taxpayer and the Internal Revenue Service (IRS) that allows the taxpayer to pay off their tax debt in monthly payments over time. An installment agreement is a viable option for taxpayers who are unable to pay their tax debt in full but can afford to make regular payments. The amount of the monthly payment is based on the taxpayer’s income and other financial information.
How to Qualify for an IRS Installment Agreement
To qualify for an IRS installment agreement, the taxpayer must meet certain criteria. First, they must owe less than $50,000 in taxes, penalties and interest. They must also be able to demonstrate that they have the financial ability to pay their taxes over time. This means they must have sufficient income to cover the payment amount, as well as other expenses. Taxpayers must also agree to file all required tax returns in a timely manner, and make all future tax payments on time.
Types of IRS Installment Agreements
The IRS offers two types of installment agreements: guaranteed and streamlined. A guaranteed installment agreement requires the taxpayer to provide financial information to the IRS and the agreement is approved based on that information. A streamlined installment agreement does not require financial information, but does require the taxpayer to agree to pay the full amount of their tax debt within six years. Streamlined agreements are usually available for taxpayers who owe less than $50,000.
How to Apply for an IRS Installment Agreement
The easiest way to apply for an IRS installment agreement is through the IRS online payment portal. Taxpayers can log into the portal and submit the application electronically. They can also use the portal to make their monthly payments. Alternatively, taxpayers can submit Form 9465 to apply for an installment agreement. This form can be printed from the IRS website and mailed to the IRS.
The Benefits of an IRS Installment Agreement
An IRS installment agreement can be beneficial for taxpayers who are unable to pay their tax debt in full. It allows them to pay their taxes over time, rather than having to come up with a lump sum payment. It also enables them to avoid other collection activities, such as wage garnishment or a bank levy. Additionally, the IRS may waive certain penalties for taxpayers who enter into an installment agreement.
The Drawbacks of an IRS Installment Agreement
Although an installment agreement can be beneficial, it does have some drawbacks. First, the taxpayer will have to pay additional fees and interest on the unpaid balance. Additionally, the taxpayer may not be able to claim certain deductions or credits while they have an installment agreement in place. Finally, the taxpayer’s credit score may be affected, since the unpaid tax debt is considered a negative item.
What Happens if You Miss an IRS Installment Agreement Payment
If the taxpayer misses an installment agreement payment, the IRS may take certain collection actions. These may include wage garnishment, bank levy, or tax lien. Additionally, the taxpayer may be charged a fee for late payments. The best way to avoid these collection actions is to contact the IRS immediately and make arrangements to catch up on the missed payments.
What Happens When the IRS Installment Agreement is Paid Off
When the taxpayer has paid off the tax debt in full, the IRS will send a letter confirming that the installment agreement was paid off. This letter should be kept for tax records. Additionally, the taxpayer’s credit score may improve once the installment agreement has been paid off.
An IRS installment agreement can be a great option for taxpayers who are unable to pay their tax debt in full but can afford to make regular payments. It allows them to pay their taxes over time and avoid other collection activities. However, there are drawbacks, such as additional fees and interest, and potential credit score implications. It is important for taxpayers to understand the implications of an installment agreement before entering into one.