When faced with a tax debt you can’t pay all at once, setting up an installment agreement with the Internal Revenue Service (IRS) can be a viable option.
An installment agreement allows you to pay your tax debt in manageable monthly payments over time. This guide will walk you through setting up an installment agreement with the IRS.
Step 1: Understand What an Installment Agreement Is
An installment agreement is essentially a payment plan with the IRS. It allows taxpayers who cannot pay their full tax liability at once to make monthly payments until the debt is fully paid.
The IRS offers several installment agreements, including guaranteed, streamlined, partial payment, and non-streamlined agreements. The type of agreement you qualify for depends on how much you owe and your specific circumstances.
Step 2: Determine Your Eligibility
Before you can set up an installment agreement, you need to determine if you’re eligible. You must file all required tax returns to qualify for an installment agreement.
For individuals, you must owe $50,000 or less in combined tax, penalties, and interest and have filed all required returns. You must owe $25,000 or less in payroll taxes and have filed all required returns for businesses.
Step 3: Gather Your Information
You’ll need some information to apply for an installment agreement. This includes:
- Your Social Security Number or Individual Tax ID Number (ITIN)
- Your filing status (Single, Married, Filing Jointly, etc.)
- A copy of your tax return (for reference)
- Your balance due (which can be found on your tax return or a notice from the IRS)
- Information about your income, expenses, and bank account
Step 4: Apply for an Installment Agreement
There are several ways to apply for an installment agreement with the IRS:
- Online: If you’re an individual who owes $50,000 or less, or a business that owes $25,000 or less, you can apply online using the IRS Online Payment Agreement tool.
- By Mail: If you owe more than $50,000 as an individual or $25,000 as a business, you must fill out Form 9465, Installment Agreement Request, and Form 433-F, Collection Information Statement, and mail them to the IRS.
- By Phone: You can also request an installment agreement from the IRS.
Step 5: Wait for Approval
After you submit your application, the IRS will review it and make a decision. If approved, they’ll send you a notice detailing the terms of your installment agreement.
This includes your monthly payment amount, due date, and any penalties or interest that will accrue on your unpaid balance.
Step 6: Make Your Payments
Once your installment agreement is in place, making your payments on time is crucial. If you miss a payment, the IRS could terminate your agreement.
You can make payments through several methods, including direct debit, payroll deduction, check or money order, or online through the IRS’s Electronic Federal Tax Payment System (EFTPS).
Step 7: Stay Compliant with Tax Laws
While under an installment agreement, you must comply with all tax laws. This means filing your tax returns on time and paying any taxes due in full. If you owe taxes for a future year, you must pay them in full; you can’t add them to your installment agreement.
Conclusion
Setting up an installment agreement with the IRS can be a helpful way to manage your tax debt. However, remember that interest and penalties will continue to accrue on your unpaid balance until paid in full.
Therefore, if you can pay your tax debt in full now, it’s usually the best option to avoid additional charges. If you’re unsure about your options, consider consulting with a tax professional or a tax resolution service like 800Tax. We can help you understand your options and guide you through the process.