Payment Plans, Installment Agreements
The Internal Revenue Service (IRS) has continued to attempt to make it easier than ever for taxpayers to obtain a payment plan to pay back taxes by making monthly payments through an installment agreement. However, despite IRS efforts to make things easier, taxpayers either find current procedures confusing or they simply don’t trust dealing with the IRS in person or through IRS’s website, irs.gov. Taxpayers certainly have a basis for that. You should always remember that IRS collection employees are tasked with collecting the entire amount of delinquent taxes owed in the shortest possible time frame. That means when you are working directly with IRS, they will attempt to get you to commit to paying the highest possible monthly amount if you’re not financially able to pay your tax debt in full immediately. Before IRS can consider an installment agreement, IRS will require taxpayers to:
• File all required tax returns;
• Consider other sources (loan or credit card) to pay the tax debt in full.
• Determine the largest monthly payment they can make.
• Understand that future refunds will be applied to the tax debt until it is paid in full.
• Be aware that penalties and interest continue to accrue on the unpaid tax liabilities during the life of the installment agreement.
• Address the cause for the accrual of taxes, e.g. under withholding, failure to make estimated tax payments, etc.
IRS may require taxpayers to address the cause for the accrual of liabilities before they approve an installment agreement. If a taxpayer claimed too many exemptions on their W-4 and that resulted in not having enough tax withheld out of their wages as to why the taxpayer wound up owing, IRS may require the taxpayer to change (reduce) the number of exemptions before approving an installment agreement. If a taxpayer is self employed and did not make estimated tax payments as required, IRS may require one or more estimated tax payments be made for the current year prior to approving an installment agreement for tax liabilities for prior years.
There are fees for setting up an installment agreement:
• $52 for a direct debit agreement;
• $105 for a standard agreement or payroll deduction agreement; or
• $43 if you meet low income criteria.
These fees are a one-time fee and must be paid in addition to any monthly installment amounts.
There are three ways to apply for installment agreements if taxpayers meet the criteria noted above and owe less than $50,000: online application through irs.gov; contacting the IRS by telephone; or completing and mailing form 9465, Installment Agreement Request to IRS.
If the amount owed is greater than $50,000, IRS will require a Collection Information Statement to be completed (Form 433-F or 433-A. Business owners who are not sole proprietors must complete a Business Collection Information Statement, form 433-B). IRS requires the information contained on these forms to be substantiated with receipts, pay stubs, bank statements, business records, etc.
Many taxpayers make the mistake of trying to obtain an installment agreement on their own and wind up agreeing to pay a monthly installment agreement amount they cannot afford. The problem with this is if the installment agreement defaults, IRS can take enforcement action including levying paychecks, bank accounts and seizing business or personal assets. Agreements can default by making payments late, payments “bouncing”, failing to make agreed upon payments and accruing additional tax liabilities by filing subsequent tax returns for which there are tax amounts owed.
That is why I highly recommend consulting a tax professional in order to obtain an installment agreement. A tax professional that specializes in collection matters can make sure to get you the lowest monthly installment agreement amount, one that you can afford and is in your best interests. In addition, a tax professional can determine whether you qualify for a “hardship” status if you don’t have the ability to make a monthly payment or qualify for an Offer-in-Compromise where you may be able to pay less than the total amount you owe.
I offer a FREE CONSULTATION. Please contact me if I can help you resolve your tax problems!