An Installment Agreement is an Internal Revenue Service (IRS) payment option that spreads payment of tax debt on a monthly payment basis. The total amount owed can be paid in full, or in partial amount.
In a scenario where you can’t afford to pay your taxes, you may qualify for an installment plan with the IRS. An installment plan allows you to pay up your tax debt over time without attracting levies or collection actions. Remember you still owe penalties and interest for remitting your tax late, but it can help make your payments affordable. The amounts to be paid monthly is determined by the amount you owe.
A tax payer can apply for a tax installment agreement through the following process;
You are allowed to choose how much you can pay off from your tax debt monthly. The IRS will ask you how much you can afford to pay at the end of each month; they always persuade you to pay as much as possible to reduce your interest and penalties. If you decide not to answer, or you select a meager amount, or you let them IRS agent pick for you, your minimum payment for each month will be the amount you owed dived by 72.
1.Guaranteed installment agreements
2.Streamline installment agreements
3. Partial installment agreements
4.Full Pay installment agreements
Guaranteed Installment Agreement:The eligibility of a taxpayer for a guaranteed installment agreement is determined by the following conditions
• Does the taxpayer owe less than $50,000, (excluding interest and penalties);
• Over the last five years has the taxpayer filled any returns, the tax payer does not owe tax, the tax payer hasn’t applied for an installment agreement before.
• the taxpayer is not able to pay tax liability at the right time or with the span of 120 days.
• the tax liability has been reviewed and can be paid off in 3years time; and
• The taxpayer must have agreed to pay the minimum monthly payments (tax liability, interest, and penalties divided by 30).
Under this payment plan, the IRS will not file a federal tax lien against the taxpayer.
Streamlined Installment Agreement:Often, a taxpayer that is qualified for a guaranteed agreement will also qualify for the streamlined installment agreement. Below are the requirements for streamlined installment agreements:
• The total tax liability, interest, and penalties owed is not above the sum of $50,000;
• The balance can be spread over and paid off within 72 months or less; and
• the proposed payment by the taxpayer is more or equal to the minimum acceptable payment.
The taxpayer is compelled to pay a fee to set up the installment agreement or a reduced fee to qualify for a direct debit installment agreement. Like a guaranteed installment agreement, the IRS does not file a federal tax lien.
Partial Payment Installment Agreement: A partial agreement has the name implies, allows the IRS to enter an agreement with the taxpayer to pay a partial payment of a tax liability. To qualify for this installment agreement, the taxpayer must have completed a financial statement Form 433-F to report the taxpayer income and living expenses. The IRS will then verify the authenticity of the information provided. In a scenario where the taxpayer has assets that can be sold to pay some debt, the IRS will ask the taxpayer to give more details. If the information has been verified to be correct, the taxpayer is compelled to participate in a financial review between a year or two. This review may sometimes lead to an increment in the installment payments or the termination of the agreement.
Non-Streamlined Installment Agreement: If a taxpayer owes unto the tone of $50,000 or more and can remit a monthly payment to the IRS, then a non-streamlined agreement is an option. IRS will automatically approve this agreement, but the taxpayer needs to negotiate with the IRS. The taxpayer must then file dorm 433-F, which is for collection information statement. This form collects all information as regards the taxpayer income, debts, living expenses, the taxpayer assets, accounts, leaving the taxpayer with the option of proposing the amount payable on installment monthly. It usually takes few months for the IRS to check a proposed agreement it considers if some expenses of the taxpayer are essential, if the information provided is genuine, or the taxpayer fails to complete a prior installment arrangement.
If a taxpayer is not able to pay a tax liability through a non-streamlined agreement, I suggest you consider filing an offer in Compromise.
Taxpayers can make installment payments using the following methods:
• Through Payroll Deduction
• Through Direct debit
• Use of Check or money order
• Electronic Federal Tax Payment System (EFTPS)
• Use Credit card
• Through the Online Payment Agreement (OPA)
Why Will the IRS Call back an Installment Agreement?
The IRS can call back an installment arrangement under the following situations:
• The taxpayer misses’ remittance of a payment;
• The taxpayer did not file a tax return, decides not to pay taxes after the installment agreement;
• The taxpayer provided incorrect information or personal details on Form 433-F; or
• The taxpayer is paying under the pretense of poor financial capabilities.
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