IRS Payment Plans (Installment Agreements)
If you’re financially unable to pay your tax bill immediately, you can make monthly payments through an IRS payment plan called an Installment Agreement. As long as you pay your tax debt in full, you can reduce or eliminate your payment of penalties or interest, and avoid the fee associated with setting up the agreement.
Before applying for an IRS payment plan, you must file all required tax returns.
If you cannot qualify for an Offer in Compromise which is discussed in another section. Then, your other alternative is to get on an IRS payment plan that will allow you to make payments in a manner which you can afford, according to the IRS.
There are several time frames for an IRS payment plan and we will optimize your payment options with the one that suits you best. There are many ways to structure an IRS payment plan and there are several types. Our industry-leading software program will help determine the best IRS payment plan option to use if we decide to pursue an Installment Agreement with the IRS.
Guaranteed Installment Agreements
The IRS will agree to an installment plan if your balance due is $10,000 or less and you meet ALL of the following criteria:
- For the previous five years you haven’t filed late or paid late.
- All your tax returns are filed.
- Your monthly installment payments will pay off your balance in 36 months or less.
- You’ve had no installment agreement in the previous five years.
- You agree to file on time and pay on time for future tax years.
The minimum monthly payment the IRS will agree to accept is the entire total of the tax balance due (including penalties and interest), divided by thirty.
The main benefit of a guaranteed installment agreement is that the IRS will not file a federal tax lien. Tax liens are reported to credit bureaus and negatively impact your credit score. The IRS will not ask for a financial statement (Form 433-F) which they use to analyze your financial situation. If you don’t meet the criteria for a guaranteed installment agreement, a streamlined installment agreement may be another IRS payment plan option.
Streamlined Installment Agreements
The IRS will approve an installment plan if your balance due is $25,000 or less, and you agree to pay off the balance in 60 months or less. If the ten-year statute of limitations on collections expires during those five years, then the IRS will require full payment within the remaining time left for the statute of limitations to run.
Effective March 7, 2012, as part of the part of the IRS’s “Fresh Start Initiative“, taxpayers can qualify for a streamlined installment agreement if the balance owing to the IRS is $50,000 or less. The taxpayer also agrees to pay off the balance in 72 months or less.
As with guaranteed agreements, all tax returns must have been filed, and future tax returns, along with any payments, have to be filed on time.
The main benefit of having a streamlined installment agreement is that a federal tax lien is not required to be filed. Furthermore, the IRS will not ask you to fill out a financial statement (Form 433-F) that they would use to analyze your financial situation.
Partial Payment Installment Agreements
If the minimum payments for either the guaranteed or streamlined installment agreements do not fit into a budget, it may make sense to consider a partial payment installment agreement. This payment plan allows for a monthly payment that is based on what you can actually afford. Essential living expenses are taken into consideration in the calculation. Unlike guaranteed or streamlined agreements, a partial IRS payment plan can be set up to make payments over a longer repayment term.
The IRS will likely still file a federal tax lien to protect its interests in collecting the balance of the tax bill. The IRS will require a financial statement (Form 433-F) to report your average income and living expenses for the past three months. Pay stubs and bank statements will be required as supporting documentation. Another difference with this type of installment agreement, is that the IRS routinely re-evaluates the terms of the agreement every two years to determine whether you might be able to pay more.
“Non-Streamlined” Installment Agreements
We will need to negotiate an installment agreement with the IRS if the balance due on the tax bill is over $25,000, or if it is necessary to have a repayment term longer than five years, or if none of the criteria are met for either a streamlined or guaranteed installment plan.
We will negotiate such an agreement directly with an IRS agent. The agreement will be subsequently routed to a manager at the IRS for review and approval. The IRS will probably file a federal tax lien (if they haven’t already). This type of agreement is often referred to as a “non-streamlined” agreement since it does not qualify under IRS’s guidelines for automatic approval. The IRS will require a financial statement (Form 433-F) so they can determine how much you can afford to pay each month toward the balance of the tax bill. The IRS will want you to try to sell off some assets; take out a bank loan; and/or obtain a home equity loan, if possible. The IRS will push for this to try to get any or all of the tax amount paid off. They prefer this so there would be no need to have an IRS payment plan.
People with tax problems should seek the advice of a federally authorized tax professional, preferably an Enrolled Agent. These tax professionals can deal with the IRS on your behalf, and can manage the process so that it’s not so overwhelming. They can also analyze your current financial situation and tax issues to provide advice regarding which IRS payment plan will best suit your needs.