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An Insight into IRS Installment Plans

An Insight into IRS Installment Plans

For people having difficulty settling a debt with Uncle Sam, there is the opportunity for an installment agreement every Month. For instance, people with a deficit of $50,000 or less can qualify for an installment plan for 72 months based on request. A debt of more than $50,000, on the other hand, requires negotiation with Uncle Sam alongside the submission of some vital documents.

Uncle Sam adopted some new rules as part of the Fresh start program, making installment plans pretty easy for people without submitting their financial information.

One needs to be up to date on the tax return of the current year. As a result, if the records reveal that the taxpayers haven't filed any tax return, a request for installments agreement will not be granted. Also, self-employed folks need to be current on the quarterly estimated tax payments for the current year. Employers with workers need to be present on payroll tax deposits to qualify for an installment agreement.

However, taxpayers need to be aware that their best option might not be a payment plan as there are cons to the arrangement. The most significant issue is the penalties and interest that will accrue through the debt period. Alongside penalties, the interest rate is set at 10% per annum. You might pay for a year, and the overall debt amount is more than what you had on the onset. 


Monthly Payment Negotiation

For people who owe above $50,000, or people who cannot pay their tax debt for the past six years, the request for an Installment agreement starts with Uncle Sam's collector examining your Form 433A – collection information statement. 

With the info present on the form, the collector will estimate what you can pay. The IRS determines the payment amount. Here are some strategies to negotiate a payment plan:

  • Propose a plan you are comfortable with. This happens at the point of submitting the 433-A form to the collector.

  • Make sure to agree to pay a certain percentage of your income after deducting your necessary living expenses. Make sure you do not offer to pay more than you can afford. This is a critical mistake as renegotiation could be terrible after an installment agreement is approved. 

After an installment plan is approved, Uncle Sam typically takes several months to notify the taxpayer. 


Making Your Payments every Month 

You will have to send monthly payments to the local service center using the payment slips and bar-coded envelopes if you haven’t gotten the written approval notice. Taxpayers can use a money order or check from another bank if they do not want Uncle Sam to know their specific bank.

On approval of the installments agreement, there are two methods to make payments:

  • A direct payroll deduction: You can request this using Form 2159. Your employer needs to be ready to send this payment to Uncle Sam every Month

  • Direct Debit: the bank can debit your checking account automatically every month and forward the funds to Uncle Sam. Provided the account is open, this is a pretty foolproof method to avoid missing a payment. 

What to do if Uncle Sam Declines your Installment Agreement Proposal

Here are reasons when Uncle Sam refuses installment agreements

  • The living expenses you claimed are not mandatory. According to Uncle Sam, your living expenses could be extravagant. For instance, people with excessive card payments, kids in a private institution, and make payments to charity might not get Uncle Sam to agree. While many people have their opinion on what is considered necessary and extravagant, Uncle Sam does not care. 

  • You did not honor a past Installment Payment agreement. Even though this will not automatically disqualify you, there could be a reluctance to honor further proposals.


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