Guaranteed Installment Agreements
The Internal Revenue Service (IRS) automatically offers an installment agreement if you owe no more than $10,000 and meet all of the following criteria:
– You (and your spouse if married) have not filed a late return or made a late payment in the past five years. This does not include extensions for filing. It means missing the tax deadline without taking any action.
– You agree to file your return on time and pay on time in future tax years.
– You agree to pay the amount owed within three years.
– You do not have an open bankruptcy proceeding.
Note: You may need to provide some information about your financial situation if you owe the IRS more than $10,000.
Individual Payment Plans
If you owe more than $10,000, you may be able to set up an individual payment plan instead. These plans are available in both long-term (more than 120 days) and short-term options.
The available plans depend on your tax debt. If the total of all your tax liabilities, penalties, and interest is less than $50,000, and you have filed all required returns, you may qualify for a long-term payment plan. If you owe less than $100,000, you may qualify for a short-term payment plan.
What if You Can’t Pay?
It is important to contact the IRS immediately if your installment agreement has been approved and your financial situation turns out to be worse than you thought, or if you face an unexpected financial setback. There are options available to help you. You may be able to reduce your monthly payment, but the options available will depend on your financial situation. You are expected to provide proof of your financial hardships to the IRS.
Partial Payment Installment Agreements (PPIAs)
Partial payment installment agreements allow you to make a monthly payment to the IRS based on what you can afford after taking into account your basic living expenses. You must have limited assets to qualify, and you must not have any pending returns. To request a partial payment installment agreement, you must submit Form 433 with Form 9465.
Form 433 is used to calculate your available income, which in turn determines your payments under the plan with the IRS. A partial payment plan can be set up for a longer repayment period, and the IRS may file a federal tax lien to protect its interests. You may need to provide pay stubs and bank statements to support your request, and document any rights you have in owned assets. The terms of the agreement will be reviewed every two years in case you can make additional payments.
Note: The IRS may require the sale of assets to pay your tax debt instead of entering into a partial payment installment agreement.
Offer in Compromise
An offer in compromise will only be discussed after exhausting all other options and being unable to make any type of installment agreement. This agreement involves negotiating with the IRS to pay less than you owe. You will typically need help from a tax professional to represent you.
It is best to seek advice from a federally authorized tax professional, such as an enrolled agent, if you are unable to pay your tax debt. The professional can speak to the IRS on your behalf and can help manage the process so it is not too overwhelming. They can also assist you in analyzing your financial situation and tax issues to help you decide which program best fits your needs.
Takeaway
The Internal Revenue Service (IRS) offers a variety of plans and installment agreements to help taxpayers get rid of their tax debts. If you owe less than $10,000 and meet some qualifications, the installment agreement is automatically guaranteed. Balances up to $50,000 may qualify for long-term repayment plans, and balances up to $100,000 may qualify for short-term repayment plans. If you are having difficulty paying, you will need to prove your financial hardships to the IRS to request a temporary delay or a partial payment plan.
Questions
The Transactions
What is the minimum amount I can pay monthly on an installment plan with the IRS?
The minimum monthly payment will depend on the amount owed and the plan you set up. However, if you owe less than $10,000, you can extend the repayment period to three years, or even up to six years for debts up to $50,000. You can divide the balance by the number of months to find out the minimum monthly payment. Higher balances may require larger specified amounts.
What type of evidence does the IRS need to grant a temporary payment delay?
If you cannot make any payments on your tax debt due to financial hardship, you may be able to temporarily stop payments. You can use Form 433 to document your financial situation.
Will an installment agreement with the IRS affect my credit score?
Not directly. An installment agreement is not considered a loan, so it is not reported to credit bureaus. However, if you fail to pay taxes until the IRS places a tax lien, it may negatively affect your success in other loan applications (such as for a car or house loan).
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Sources:
– Internal Revenue Service. “Instructions for Form 9465,” Pages 1-2.
– Internal Revenue Service. “Apply for a Payment Plan.”
– Internal Revenue Service. “What If I Can’t Pay My Installment Agreement?”
– Internal Revenue Service. “5.14.2 Partial Payment Installment Agreements and the Collection Statute Expiration Date (CSED).”
– Internal Revenue Service. “Offer in Compromise.”
– TurboTax. “What Is the Minimum Monthly Payment for an IRS Installment Plan?”
– Experian. “Do Taxes Affect My Credit Score?”
Source: https://www.thebalancemoney.com/installment-agreements-3193406
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