In short, if your tax bill is higher than expected and you can’t afford to pay your tax debt then you need to setup a payment plan with the IRS.
Either you or a tax specialist will have to negotiate with the IRS to determine the length of time and a monthly amount you can afford in order to pay off your balance. The IRS considers many factors when setting up an agreement so be sure to have all your tax documents ready.
What is an IRS tax payment plan?
An IRS payment plan is an agreement between the taxpayer and the Internal Revenue Service in which the taxpayer pays off their tax debt by making monthly payments over an extended period of time.
Depending on the circumstances, taxpayers may qualify for a short-term plan that lasts up to 120 days or a long-term plan lasting up to 72 months. Generally, if a taxpayer owes more than $50,000 they must provide financial information such as income, assets, and expenses to determine eligibility for an installment agreement. Payment amounts are based on the total amount owed divided by the number of months remaining in the repayment period.
All payments must be made in full and on time via electronic funds transfer or check/money order within five business days after the due date specified on the bill. Failure to pay could result in additional penalties, interest, collections, and possibly a federal tax lien by the IRS.
Who is eligible for an IRS payment plan?
An IRS tax payment plan is available to taxpayers who are unable to pay the full amount of their taxes due to financial hardship. The agreement allows you to make smaller payments over time in order to pay off the taxes you owe.
To be eligible, you must have filed all your tax returns and provide proof that you cannot afford to pay off your balance within 120 days or before the date your return is due, whichever is earlier. You must also submit a financial statement showing your assets, liabilities, and income.
Additionally, you must agree to comply with all federal tax laws while on an IRS payment plan. Finally, if you owe more than $50,000 in taxes then you must provide additional information such as bank statements and retirement account documents.
If approved, an IRS payment plans can help ease some of the financial burden of paying your debt and help you get back on track with the IRS.
What are the fees for an IRS payment plan?
The fees typically depend on your individual circumstances, but generally speaking, the IRS charges a setup fee of $149. This fee is only charged once and covers the cost of setting up the payments.
You may also be required to pay an additional user fee to access the IRS payment plan, which is currently set at $31.
Depending on the amount of time you need to pay off your taxes, you may also be subject to an interest rate on the balance owed. This rate changes each quarter and is based on market rates.
Additionally, if you do not make payments on time or fail to pay the full amount due before the balance expires, there could be additional penalties assessed by the IRS.
Can I make changes to an IRS payment plan?
Yes, you can make changes to an existing IRS payment plan. To do this, you must submit a written request to the IRS detailing the changes you would like to make. Be sure to include important information such as your name, address, and taxpayer identification number. The IRS will review your request and determine if they are able to accommodate your request.
If approved, the IRS will send you a revised plan outlining the new terms of the agreement. Keep in mind that any changes made to an existing payment plan may result in additional fees or penalties from the IRS.
It is important to always keep up with payments while you’re on a payment plan in order for it to remain in good standing with the IRS.
How long are IRS Payment Plans?
IRS payment plans can vary in length and are different for each tax problem, depending on the amount owed and how much you can afford to pay it could range anywhere from 120 days to 3 years.
Generally speaking, there are two types of agreements: short-term and long-term plans. A short-term payment plan is usually for taxes due of less than $50,000 and allows a taxpayer to pay off the debt within 120 days.
On the other hand, a long-term payment plan is for taxes due greater than $50,000 and typically lasts up to 72 months (6 years).
For individuals or businesses that do not qualify for either type of agreement, there may be other options available such as an Offer in Compromise or Partial Payment Installment Agreement.
How does the 120 day payment plan work for IRS?
The IRS 120 day payment plan is a way for taxpayers to settle their debt with the IRS. It allows taxpayers to make monthly payments towards the full balance they owe over a period of up to 120 days.
The taxpayer will typically be required to pay the full amount due, plus any applicable interest and penalties, within the 120 day period. In some cases, the taxpayer may be able to negotiate reduced payments or even an extension on the payment plan.
To qualify for this IRS payment plan, taxpayers must have filed all tax returns that are due and must meet certain financial criteria set by the IRS. Once accepted into a payment plan, taxpayers should make their payments on time and in full in order to avoid any additional penalties from the IRS.
What is the minimum monthly payment on an IRS installment agreement?
The monthly payment on an installment agreement depends on the total balance owed and other factors, including your ability to pay your tax bill.
Generally, taxpayers must pay their tax debt in full within three years.
The minimum payment is usually calculated as a percentage of the tax owed and is usually determined by the taxpayer’s ability to pay. For example, if the total balance due is $10,000, then the taxpayer may be required to make a minimum monthly payment of $125 or more. This amount could be higher or lower depending on the taxpayer’s financial situation.
Additionally, if payments are not made within 120 days of the agreement being signed, then additional fees may be incurred which can significantly increase the total amount owed.
Therefore, it is important for taxpayers to understand their financial situation and ensure they can meet these payment amounts before entering into an installment agreement.
Can I set up an IRS payment plan myself?
Yes, you can apply for an installment agreement from the IRS yourself.
The IRS offers several different payment plans, including a streamlined installment agreement and an offer in compromise. To apply for an installment agreement with the IRS, you will need to fill out Form 9465 and submit it to the IRS. You can also apply online or by calling the IRS directly.
An offer in compromise is a tax settlement that allows you to pay less than what you owe; however, this option requires more paperwork and additional documentation.
Additionally, if you are having trouble affording your payments, there are other options available such as applying for a hardship extension or requesting a temporary delay of collection action from the IRS.
While you can apply by yourself because you can’t pay now, we highly recommend consulting with a tax expert. Not only can they potentially help lower the amount you’ll have to pay but they are experts in filling out and filing the necessary paperwork to the IRS.
Setting up an installment agreement and establishing the monthly payment takes careful planning and preparation. One small mistake could result in higher payments to the IRS.
What happens if I miss a payment on my IRS installment agreement?
If you miss a payment on your installment agreement, the consequences can be serious.
The IRS may immediately terminate your agreement and pursue collection action against you. Keep in mind, there are many avenues for the IRS to collect the tax debt, this could include wage garnishment, bank account levies, or even seizure of personal property.
Additionally, the IRS may assess additional fees and interest on any unpaid balance. Depending on the length of time between payments, you could also be subject to a penalty for failing to pay taxes timely.
It is important to stay up-to-date with your payments and contact the IRS if you are unable to make one. If neglected, these missed payments could lead to serious financial hardship in the long run.
Need help setting up an installment plan with the IRS?
Give us a call 877-860-3731 for a free 15 minute consultation to discover which payment option is best for you.
Remember, the IRS charges you interest even if you can’t pay now. Once you are on a payment plan it will help you avoid unnecessary fees, collections, tax liens and levies.
Our tax specialists are standing by to help you set up a payment plan today.