The IRS installment agreement is one of the most popular methods of paying off a tax debt. Being a tax resolution expert, I know clients who have benefited from it. If you owe the IRS, the best course of action is to settle as soon as you can. Contrary to popular belief, the tax agency prefers taxpayer-initiated resolutions to having to take aggressive collection action.
Ignoring a tax demand notice leads to additional fines and penalties which ultimately increase your tax debt. The IRS can resort to extreme actions. These include wage garnishment, levying your bank account, confiscating property, and imposing a tax lien. Understanding various tax settlement methods increases your chances of a successful agreement with the federal government.
Types of Installment Agreements
Before suggesting a particular type of IRS installment agreement, I first scrutinize my clients’ tax debt situation. Depending on how much they owe, payment options include:
- Guaranteed Installment Agreement
It’s available to taxpayers who owe back taxes and are unable to pay the debt within 120 days. To qualify, one must have consistently filed tax returns and paid any taxes owed over the past 5 years. This agreement is set up at an amount that will have the taxes paid in full within a five-year period. This type of agreement can be set up on larger amounts with manager approval and submission of financial information showing the ability to pay this amount on a monthly basis.
- Streamlined Installment Agreement
This is suitable if your total tax liability including fines, penalties and interest don’t exceed $50,000. You must also be able to clear the debt within 72 months. Your proposed payment plan should be equal to or higher than the minimum acceptable payment.
- Partial Payment Installment Agreement
This agreement allows you to make a smaller monthly payment towards your tax debt that does not show it will be paid in full by the collection statutes. To qualify, your financial statements, income, and expenses must be reviewed using a variation of Form 433. If you can liquidate some assets to reduce your tax liability, you’ll be encouraged to do so.
This agreement is reviewed every 2 years. Depending on your financial standing, the IRS may request that you increase your monthly payment amount to what shows as affordable from the updated review.
- Non-streamlined Installment Agreement
If you owe $50,000 or more, this is a suitable repayment option. Since the IRS won’t automatically accept your offer, you need the help of a tax resolution expert to help you negotiate. You’ll be expected to fill out a Form 433 (Collection Information Statement) to ascertain your payment capability. Based on the financial figures, you can propose an affordable monthly payment plan asking the IRS to accept your proposal.
Remember to be as truthful as possible when applying for this payment plan, otherwise, the IRS could easily reject it. If the IRS does not agree with the amount you proposed, they will usually respond with an amount they have determined you can afford to pay on a monthly basis
If you owe more than $50,000, you can’t apply for an IRS installment agreement online but rather will need to make your request by calling the IRS or mailing in the request with the appropriate forms.
The application will then be reviewed which is a process that can take several months. The financial information included covers:
- Any existing accounts, including lines of credit.
- Assets such as real estate, stock options, and other investments.
- Your monthly income as well as living expenses.
If your request is approved, you’ll be required to pay between $43 and $245. The exact amount depends on your income and the type of settlement plan you qualify for.
The IRS provides several payment options for taxpayers’ convenience. In the past, it wasn’t possible to pay in cash but that changed with the introduction of PayNearMe partnership. Cash payments can only be made at approved locations. This method was introduced in early 2019, and I recommend this only if you cannot pay using your bank account.
Before doing so, visit the tax agency’s Official Payments website and choose the IRS Installment Agreement option. You’ll receive a code and present it at a PayNearMe location for scanning. Cash isn’t very convenient because it takes up to 7 business days to reflect. Other payment options include:
- Direct Debit
Payments can be deducted from the taxpayer’s checking or savings account through the Direct Pay function. This system can’t accept more than 2 payments over a 24-hour period. You can make a payment directly from your bank account manually, or have it set up where the IRS will draft the payment from your account automatically on a certain day of the month that you designate as long as it is no later than the 28th of the month.
- Payroll Deduction
It’s convenient because your employer deducts monthly installments from your wages and automatically sends them to the IRS. This method requires employer approval and a form they must complete agreeing to this. Many taxpayers do not want their employer knowing they are dealing with outstanding tax debt, and therefore this is not a very popular option, but it is available.
- Electronic Federal Tax Payment System (EFTPS)
You must be enrolled to use this service and can either pay via phone or online. Phone payments are made by calling 1.800.555.3453, or 1.800.733.4829 for anyone with hearing and speech disabilities. For online payments, login and follow the prompts.
- By Credit Card via Phone or Online
If paying via credit card, you’re limited to doing so not more than twice a year for the same tax bill. You might need to liaise with your card provider for payments worth more than $100,000. There have recently been some changes to how the IRS accepts credit card payments and these changes are still being fully implemented.
- Check or Money Order
Make sure you have enough money in the bank because writing a bad check will attract penalties. When writing out a check or money order, it is very important to ensure the memo section of the payment shows your SSN/ EIN and the tax year the payment is to be applied to. Without your SSN/ EIN on the check, the IRS will not know where to apply it. You need your entire identification number, not just the last four.
Points to Note about an IRS Installment Agreement
IRS installment agreement applications aren’t always accepted. To improve your chances, there are some important points to ponder:
- Tax resolution experts such as True Resolve Tax are your best bet for success. They’re armed with years of experience and have helped numerous clients in the past. They’re also trained to professionally negotiate with the IRS on your behalf.
- Having all the necessary documents when planning for installment payments makes the process easier and more likely to succeed.
- If your application is accepted, always strive to pay each installment on time. Failure to do so might prompt the IRS to terminate the agreement and require you to start the process of requesting another agreement all over from the beginning. You should keep up to date on your tax return filings and estimated tax payments, even while your application is being reviewed.
- Pay attention to detail. Your application might be rejected for reasons such as filling out incorrect information concerning your finances. Instead of guessing, make sure you’re 100% accurate.
- Never ignore any correspondence from the IRS. Past cooperation plays a huge role in determining whether your application will be successful. If you have a history of defaulting multiple agreements in the past, the IRS does not have any requirement to continue to set you up on agreements.
- If you qualify for the IRS installment agreement, any future tax refunds will go towards paying your tax debt. This is good because you’ll pay it off faster than anticipated with just the payment plan amount.
- You may request an IRS installment agreement by calling the agency at 1-800-829-1040. They will go through all this information with you over the phone to set up your agreement.
Are You Trying to Resolve a Tax Debt?
If you’ve received a tax balance notice from the IRS, you don’t have to struggle to deal with the IRS alone. True Resolve Tax is always on standby to guide you through the rigorous resolution process. To improve your chances of an IRS installment agreement, we’ll also thoroughly scrutinize your financial and tax records. As Enrolled Agents, we’re licensed and authorized by the federal government to represent you before the IRS. Although we’ve resolved numerous tax disputes in the past, we work in the best interests of each client. For more details, book an appointment with us today. If you’re in Denver, CO, we’ll be more than happy to meet with you for a face to face discussion.