Find out If You Qualify For An IRS Installment Agreement (IA)
There are only two things in life you can count on: the certainty of death and taxes.
What happens when you’re not capable of paying your entire tax bill when it’s due? You may assume that things like high fees, serious penalties, and arrest could be in your future. The good news is that it doesn’t have to come to that if you act swiftly.
The bad news is that you do have to act. You’ll need to learn about IRS payment plans and how to set up a payment plan with the IRS.
The IRS and state taxing entities are often willing to provide taxpayers with installment agreements and payment plans that make it possible to pay off tax debts over time. Of course, you can never assume that you are eligible for or entitled to one of these installment options. You need to do your research, apply for a program, and follow instructions. The IRS or state taxing authority will require you to complete a personal financial statement and (if necessary) a business financial statement. This very important and detailed step should be handled with the help of a qualified tax professional to ensure you have every chance of being granted an IRS payment plan.
Find out what you need to know about entering into an IRS installment agreement if you’re facing a tax bill you can’t afford.
Who Can Qualify for an IRS Installment Agreement?
An installment agreement from the IRS could be an option for anyone who is unable to pay back taxes. However, you will need to be in compliance with certain requirements before the IRS will consider approving your application:
- You must be current with all filed tax returns
- You will need to disclose all assets and cash
- You must be able to prove that you lack the adequate cash available to pay off your tax debt by providing records of your checking, savings, and brokerage accounts
- You must be able to prove that you’re unable to borrow the amount you owe in tax debt using loans or refinancing options
- You must be able to prove that you lack adequate equity in retirement accounts to pay off your debt
Is an installment plan your only option if you cannot pay off the tax debt you owe? Not necessarily. You actually have several options if your goal is to avoid penalties, fees, and other repercussions that can stem from owed taxes. The list includes an Offer in Compromise (OIC), Currently Non-Collectible (CNC) status, and Penalty Abatement. If you owe money to the IRS, you should explore every option on the table!
Many of these options hinge on your specific financial situation, so you’ll only be eligible if you meet certain requirements. For instance, Currently Non-Collectible status is reserved for taxpayers who genuinely cannot afford to pay their debts. If the IRS determines that you can in fact pay off your debts, you won’t be eligible to apply for this type of relief.
How to Apply for an IRS Installment Agreement
Not everyone who qualifies for an IRS installment agreement will automatically be placed on a plan. In fact, the IRS will assume that you’re ignoring your tax debt if you fail to respond to notices about what you owe. Instead of taking that route, you should take immediate action when you receive an IRS notification about a tax debt that you know you can’t pay off.
If you want to learn how to set up a payment plan with the IRS, your first step is filing all your tax returns. You won’t be able to set up any type of payment arrangement if you’re behind on filing your taxes.
Once all your returns are filled, your next step is getting in touch with an IRS agent about what you owe. The IRS agent you speak with will provide more information about how to set up an installment agreement, but in general, the process goes like this:
- The IRS will send you a letter regarding your tax debt
- You will need to contact the IRS
- Discuss the possibility of IRS payment plans with an IRS agent or tax professional
- Contact the IRS and request a plan
- Provide the IRS with any needed documentation about your finances
Once you’ve gone through these steps, the IRS will send you an answer via snail mail. Your letter will outline whether you were approved or denied for your installment agreement. If you were denied, the letter should detail what went wrong with your application or give you a clear reason as to why you can’t be on an installment plan.
If you did get approved for your plan, the IRS will outline the terms and conditions of your plan on the letter. It will describe how much you’ll need to pay and how to make payments on your installment agreement.
Terms of IRS Installment Agreements You Need to Know About
When it comes to IRS payment plans, there isn’t much room for negotiations. In general, you’ll need to comply with whatever terms the IRS sets out. If you cannot meet those terms, it’s best to consider alternative options. Otherwise, you’ll need to comply with the terms outlined in the installment agreement exactly as they’re stated.
There are some terms you need to be aware of, though. Here are some FAQs and answers:
How Much Interest Does the IRS Charge for Payment Plans?
Right now, the current interest rate for IRS installment agreements hovers around 0.25%.
How Much Will the IRS Accept for Payment Plans?
The IRS will outline the amount they expect you to pay based on your financial situation. They will not accept an amount lower than what they suggest. If you genuinely cannot pay, then the IRS will work with you. Otherwise, they expect you to fulfill your obligations.
How Long Can You Set Up a Payment Plan with the IRS?
The longest possible term for a payment plan is 72 months.
Can You Have Two Installment Agreements at the Same Times?
No. You can only have one installment agreement with the IRS at one time. If you start to default on new tax debt, then that will also cause you to default on your installment agreement, too.
Get the Tax Help You Deserve
If you owe money to the IRS, time isn’t necessarily on your side, so get the ball rolling to avoid penalties and consequences that could be coming your way. The good news is that the IRS is often willing to provide you with protections once you formally enter into an agreement for getting your back taxes paid.
Tax Group Center is here to help you every step of the way. Our team of licensed tax professionals, CPAs, and lawyers is backed by 30 years of experience. We’ll help you make the process of applying for a payment plan from the IRS as smooth as possible!
Reach out to our office now to get started on creating your IRS installment agreement.