IRS plans are a popular method for taxpayers to pay off their tax debt over a while. An installment plan allows you to pay off your tax debt in smaller, more manageable payments instead of having to pay the entire amount at once. This can be particularly helpful for those who are unable to pay their taxes in full when they are due. In this article, we will discuss what you need to know about IRS installment plans, including how they work, the different types of plans available, and how to apply for an installment plan.
How do IRS installment plans work?
An IRS installment plan is a payment agreement between you and the IRS that allows you to pay your tax debt over time. The amount of your monthly payment will depend on the amount you owe and the length of time you have to pay it off. When you apply for an installment plan, the IRS will review your financial situation to determine what you can afford to pay each month. The IRS may ask you to provide financial information such as income, expenses, and assets to help determine your payment amount.
It is important to note that the IRS charges interest and penalties on an unpaid tax debt, even if you are on an installment plan. The interest rate is typically based on the federal short-term interest rate plus 3%. The penalty for late payment is usually 0.5% of the unpaid monthly tax, up to a maximum of 25%.
What types of IRS installment plans are available?
Several types of IRS installment plans are available, each with its requirements and payment terms. The most common types of installment plans are:
Guaranteed Installment Agreement
This type of installment plan is available to taxpayers who owe $10,000 or less in taxes, penalties, and interest and who can pay off the debt within three years. To qualify, you must have filed all required tax returns and have yet to enter into an installment agreement in the previous five years. Under this plan, the IRS will not file a federal tax lien against you.
Streamlined Installment Agreement
This type of installment plan is available to taxpayers who owe $50,000 or less in taxes, penalties, and interest and who can pay off the debt within six years. To qualify, you must have filed all required tax returns and have yet to enter into an installment agreement in the previous five years. Under this plan, the IRS may file a federal tax lien against you, but only if the balance owed is over $25,000.
Partial Payment Installment Agreement
This type of installment plan is available to taxpayers who need help to afford to pay their full tax debt but can make monthly payments. Under this plan, you will make payments to the IRS over an extended period of time, and at the end of the payment period, any remaining tax debt will be forgiven. To qualify, you must provide detailed financial information to the IRS to demonstrate that you can only pay part of the amount owed. The IRS will review your financial information and determine your monthly payment amount.
Non-Streamlined Installment Agreement
This type of installment plan is available to taxpayers who owe more than $50,000 in taxes, penalties, and interest or who cannot pay off their tax debt within six years. Under this plan, you will make monthly payments to the IRS over an extended period of time. To qualify, you must provide detailed financial information to the IRS to demonstrate that you can only pay part of the amount owed. The IRS will review your financial information and determine your monthly payment amount.
How to apply for an IRS installment plan
To apply for an IRS installment plan, you will need to submit Form 9465, Installment Agreement Request, to the IRS. You can submit the form online or by mail. Before applying for an installment plan, you should file all required tax returns and make any required estimated tax payments. If you owe $50,000 or less in taxes and want to apply for a guaranteed or streamlined installment agreement, you can apply online using the IRS Online Payment Agreement tool.
When you submit your installment plan application, you will need to provide information about your financial situation, including your income, expenses, and assets. You will also need to propose a monthly payment amount you can afford. The IRS will review your application and may contact you to request additional information or to discuss your proposed payment amount.
If your application is approved, you will receive a confirmation letter from the IRS that outlines the terms of your installment plan. You will be required to make your monthly payments on time and to continue to file all required tax returns while on the installment plan. If you fail to make your payments or file your tax returns, the IRS may terminate your installment plan and take collection action against you.
What are the benefits of an IRS installment plan?
There are several benefits to using an IRS installment plan to pay off your tax debt. These include:
Flexibility: An installment plan allows you to pay off your tax debt over time, which can make it easier to manage your finances.
Avoiding collection action: If you are on an installment plan, the IRS will generally not take collection action against you, such as filing a federal tax lien or seizing your assets.
Protecting your credit score: If you are on an installment plan, the IRS will not report your tax debt to the credit bureaus as long as you make your payments on time.
Reducing interest and penalties: While the IRS charges interest and penalties on an unpaid tax debt, the amount of interest and penalties you owe may be reduced if you are on an installment plan.
Avoiding additional fees: If you are on an installment plan, you will not be charged additional fees for setting up the plan.
Conclusion
If you are unable to pay your tax debt in full when it is due, an IRS installment plan may be a good option for you. installment plans allow you to pay off your tax debt over time, which can make it easier to manage your finances. Several types of installment plans are available, each with its requirements and payment terms. To apply for an installment plan, you will need to submit Form 9465 to the IRS and provide information about your financial situation. If your application is approved, you will need to make your monthly payments on time and continue to file all required tax returns while on the installment plan. While the IRS charges interest and penalties on an unpaid tax debt, the amount of interest and penalties you owe may be reduced if you are on an installment plan.
FOR MORE INFORMATION ON HOW KLSM CPA FIRM PLLC CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLICK THE BLUE TAB ON THIS PAGE.
THANKS FOR VISITING.
