What is an IRS Online Payment Agreement?
Many taxpayers find themselves in the precarious situation of owing the IRS more than they can afford to pay. The IRS offers these taxpayers the opportunity to pay off outstanding tax balances with monthly installment agreements. As part of their Fresh Start Initiative Program, it is now easier to qualify for and obtain an installment agreement with the government agency. Thanks to this program, the qualification threshold was increased from $25,000 to $50,000, and the timeline for payments was increased from 60 months to 72 months in recent years. To make things even easier for delinquent taxpayers to get their payments in on time, the IRS now offers online payment agreements, through which you can easily apply and pay online.
With an IRS online payment agreement, the taxpayer makes monthly payments set by the IRS until the balance is paid in full. While the payments are being made, penalties and interest will continue to accrue. Individuals must apply online and the IRS will determine using a standard template if the taxpayer qualifies for the resolution.
How Do I Qualify for an IRS Online Payment Agreement?
To qualify for an IRS online payment agreement, you must have filed your taxes. Even if you can’t afford your total tax liability, it’s always better to file on time then pay the steep failure-to-file penalties the IRS enforces. In order to qualify for an IRS online payment agreement, you must owe less than $50,000 and be able to show that you can’t realistically pay the tax liability owed in less than six years. After you request an installment agreement, an IRS collector will analyze your Collection Information Statement as entered on Form 433-A. Payment amounts are based on the collector’s assessment of your information included on the tax form.
To be eligible for an IRS online payment agreement, there are several requirements you must meet. All of your current and previous filing processes must be complete; all tax returns must be filed before you’re able to apply for any type of payment agreement with the IRS. If you’re an individual taxpayer, you cannot owe more than $50,000 in combined income tax, interest, and penalties incurred from outstanding tax debts. If you’re a business, you cannot owe more than $25,000 in payroll taxes. It’s simple to apply for an IRS online payment agreement online through IRS.gov, but using the help of tax professionals at Community Tax will help you first come up with a payment plan offer that’s more likely to be approved. If you owe an outstanding balance on multiple accounts, you’ll likely interact with multiple collectors for each. This means you may end up with multiple installment agreements set at different rates with different timelines, which can be confusing for the average taxpayer to navigate. Our tax professionals can help you organize varied accounts and determine the best online payment agreements for each.
Community Tax can help you propose a payment plan that fits your circumstances and is more likely to be approved as sufficient by the tax collector. Generally, taxpayers with outstanding tax liabilities should offer to pay the difference between their overall income and necessary living expenses, at the very least. This is the money left over every month after you’ve paid for life’s necessities, including food, gas, rent, and the like. It’s important to strike the perfect balance on your offer; should you propose a payment that’s too low, it won’t be accepted by the IRS and you’ll continue to accrue harsh penalties and interest rates. If you propose a payment plan that’s more than you can afford, you can find yourself unable to deliver the promised payments. Once your installment agreement is approved, the IRS is unlikely to allow you to renegotiate it.
When you make your installment agreement proposal, it’s important to make the first payment immediately. While your request is pending, continue to make these payments; these voluntary offerings demonstrate your willingness and ability to stick to a payment plan and may improve the likelihood of approval. The approval process for an installment agreement request can take several months, so it’s important to get started paying as quickly as possible. Our team of tax professionals can help you prepare these payments and make sure they get to the appropriate offices. Until you receive your written notice of approval from the IRS, it’s best to send payments to a local service. Simply use the payment slips and envelopes that came with your IRS notices.
The Setup Fees
It isn’t free to set up a payment plan, but this nominal fee is much lower than the interest rates and penalties that can build up if you ignore your tax debt. It generally takes 30 days to several months for the IRS to approve or deny an installment agreement request. If your request is approved, the IRS will send you an official notice that details the stipulations of your payment agreement, and include a bill for the setup fee. This setup fee is $120 to set up a monthly installment agreement, regardless of whether you apply in person or online. If you choose to pay by direct debit, which the IRS recommends, the fee is only $52. Some taxpayers are qualified for a reduced setup fee. If you can prove your total taxable income is below a certain level, you may only need to pay a setup fee of $43.
IRS Online Payment Agreement Types
There are two key types of IRS online payment agreements, with varied eligibility requirements and payment stipulations. These include monthly installment plans and short-term payment plans.
Monthly Installment Plan
The most common type of IRS Online payment agreement is a monthly payment setup. This option allows taxpayers to pay off their total debt in monthly installments over time, generally over a period of 72 months.
When you make the request for a monthly online payment agreement, you’re committing to making the monthly payments on time until your debt is paid off completely. You are also committing to fulfill any future tax obligation, meaning you make estimated tax payments or have your employer withhold enough tax money so that your liability for future filing periods is fully paid when you file any subsequent tax return.
- How do I Send in Payments?
You have a variety of options when it comes to making installment payments. Taxpayers can pay through money order, credit card, check, direct debit, or payroll deduction. After the IRS receives a payment, they will send a notice that details the remaining balance. The notice will also include the amount and due date for your next planned payment. If you choose direct debit, your payments will be automatically withdrawn from your bank account and you won’t receive a notice.
- What Happens If I Can’t Make a Payment?
If you miss a payment, pay late, or file a future tax return without paying the proper balance, you’ll be in default of your installment agreement, and the IRS will take action against you. The IRS may file a Notice of Federal Tax Lien, which is a legal claim against your assets or property. This allows the IRS to take precedence over other creditors you may owe. If you ignore the tax lien, the IRS may enforce a federal tax levy, which sees the government actually seizing your property satisfy your debts. A levy may take the form of a wage garnishment, in which the IRS takes out a portion of your paycheck directly from your employer. It may also be seen in bank account seizure, when the government can deplete your checking or savings accounts in order to cover what you owe. If you continue to avoid payment or commit fraud in order to evade your tax liability, you could face criminal charges and jail time.
These consequences illustrate just how important it is to create a payment plan request that you can realistically fulfill for the foreseeable future. Community Tax can help.
Short-Term Payment Agreement
If you owe the IRS less than $100,000, you may be eligible for a short-term payment agreement. This allows you an extra 120 days past the due date to pay your tax liability in full. You can apply online for a short-term payment agreement online or over the phone. If you can afford to pay off your outstanding debt within 120 days, you can avoid paying the setup fee for an installment agreement.
There are several things that make an IRS online payment agreement difficult to pursue on your own. First, the IRS will not fully consider all expenses—they merely look at last year’s return and determine what you can pay per month. Things such as new children, job changes, etc. are not always considered. As a result the monthly payment is likely to be higher than what it may be if you used the help of an experienced tax preparer from Community Tax. Additionally an online installment agreement is not available to all individuals and businesses if they have debt above the $50,000 or $25,000 threshold.
What Happens to My Tax Refund if I have an IRS Online Payment Agreement?
If you’re participating in an online payment agreement or other form of IRS installment plan, any tax refunds you claim during this time will automatically be applied to your outstanding tax debt.
What If I Can’t Pay My Total Debt?
Some taxpayers find that they’ll never be realistically able to pay off their total tax liability. If this is the case, our team of tax professionals can help you prepare an Offer in Compromise (OIC) request. An Offer in Compromise is a last resort in most cases, only used after a taxpayer has tried and exhausted other payment options. If you feel that certain circumstances or life events make it impossible for you to ever pay off the full amount owed, you can request an OIC. If the IRS accepts your offer, they’re allowing you to settle your tax liability for a lesser amount.
It’s extremely hard to get an Offer in Compromise approved; your offer must be a realistic appraisal of what you can pay. The IRS Statute of Limitations allows the government agency to pursue back tax collections from you for 10 years (and longer in some cases); if they believe they can collect the full amount owed in that time, they won’t accept your OIC offer. If you believe an Offer in Compromise is your only option, Community Tax can help you draft a realistic offer that will increase your likelihood of being approved. The IRS will consider your ability to pay, current income, future expected income, expenses, and any assets you currently own.
If your OIC is approved, you’ll need to pay off your debt in one of three ways: through a lump sum payment made in five or fewer installments, through a short-term periodic payment paid off in full within 24 months, or through a deferred periodic payment in which the debt must be paid within the 10-year statutory period.
How Can Community Tax Help Me?
Community Tax can help with each of these issues. First, we look at the whole picture regarding your available income and determine the lowest possible payment. Second we have no limit on the amount of debt you must have to pursue the agreement. Whether you owe $10,000 or $100,000, we will be able to help you set up an Installment Agreement.
As a result there are many benefits to using Community Tax. Our team of qualified individuals look closely at all information to determine which resolution is best for you. If that resolution is an Installment Agreement, we will make sure that the monthly required payment is the lowest amount possible with your personal income position. Additionally when using Community Tax, you will be dealing with a worker assigned to your case. There is no calling the IRS and hoping to get a hold of someone who can help. Our teams are available Monday-Saturday and are always ready to help. There is a clear value to using Community Tax to help set up Installment Agreements on your behalf, give us a call today for more information 1-888-676-4319.