IRS Installment Agreement

IRS Installment Agreement

What If I Can’t Make the Next Payment on My Current Installment Agreement?

The Internal Revenue Service knows financial hardship happens.

And even on the most well-crafted IRS installment agreement, unexpected expenses from medical bills and auto accidents or changes in income due to the loss of a job may leave you unable to pay your approved short-term or long-term payment plan. Installment payment plans aren’t just for low-income taxpayers. Instead, an installment payment financing arrangement allows you to work down a tax lien until it is paid off.

If you find yourself in this situation, hope is not lost, the most important thing to do is act immediately.

Contact the IRS as soon as you are aware that you may not be able to pay. If you don’t have the funds to immediately pay back the unpaid federal taxes owed to the Internal Revenue Service, it’s important to immediately contact the government agency and begin working on a tax payment plan.

There are a number of options available to you.

The IRS may adjust your installment plan to reduce the monthly payment amount and extend the timeframe, to make your monthly payments more manageable. Be prepared to provide proof upon calling, including any unexpected bills or any proof of loss of employment.

You might quality for an IRS Installment Agreement.

Find out with a FREE consultation today!

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Qualified taxpayers who are not currently in financial hardship, but may be very close to that threshold, may be able to qualify for an Offer In Compromise. If you’re going to miss one of your installment agreement payments, there are other options available, including an offer in compromise.

This gives you the opportunity to negotiate with the IRS to reduce the amount you owe. Through an Offer in Compromise, you can come to an agreement with the IRS to settle your debt for less than the total amount that you owe.

This mostly applies to those who would be put into financial hardship if they added tax debt payments to their current list of expenses.

Sounds too good to be true, right? The good news is that it’s not! An Offer in Compromise is your chance to effectively haggle with the IRS, and can leave you with more money in your pocket, and back in the IRS’ good graces.

Contact us today to find out if you qualify for an IRS Installment Agreement.

To qualify for an Offer in Compromise, you must meet at least one of the following criteria:

  • Doubt as to liability: There is reason to believe that the IRS has made an error in their calculation of the amount you owe.
  • Doubt as to collectibility: The owed amount is considered not collectible, meaning that the total of your assets and income is less than the amount that you owe.
  • Effective tax administration: Paying the owed amount would cause you undue economic hardship.

Many Americans opt for an Offer in Compromise due to effective tax administration, that collection will cause undue economic hardship. In this situation, the IRS determines the maximum amount they would be able to get from a taxpayer without causing financial hardship.

Then the remainder of the tax owed is forgiven and the individual is released from their liability as soon as the taxpayer meets the conditions of their agreement with the IRS.

But how exactly do you qualify? To face extreme economic hardship means that, in paying your total tax amount, you will no longer have the funds to cover your basic living expenses.

Situations that commonly cause economic hardship include:

  • A long term illness or disability that consumes most of your monthly income.
  • The care of dependents takes up your entire paycheck.
  • You are retired and on a fixed income.
  • Your unpaid taxes have put you at risk for bankruptcy.
  • You meet federal guidelines for low-income.

Your current plan type might once have worked, but after reviewing your financial statements, it’s clear you need a different plan option. The IRS will factor in disposable income and any assets held by the taxpayer when making a determination for an offer in compromise. An offer in compromise can wipe the slate clean with the IRS for substantially less than what the taxpayer owes. Offers in Compromise are difficult to achieve, but offer a substantial benefit to struggling taxpayers if they qualify.

If you do opt for an Offer in Compromise, it’s important to enlist the help of a tax professional. Community Tax Relief has tremendous experience at determining a taxpayer’s eligibility for an offer and also just as much success negotiating them for our clients.

They can help you craft a compelling argument for your qualification, as well as manage the negotiations process. By enlisting the help of a professional, there’s a higher likelihood of qualification, and of a lower payment on your tax bill.

Want to set up a payment plan for your overdue tax balance?
Not sure where to start?

The installment agreement is a method of owed tax resolution that allows an individual to pay off their balance over a period typically ranging from 6 months to ten years. Depending on the amount owed to the IRS or state tax agency, the period can vary.

Community Tax determines the amount of each monthly payment based on the taxpayer’s personal assets, property and other financial information and negotiates with the IRS to achieve that monthly payment plan. The estimated tax payment should be something you know you can afford, which is why these agreements come in many forms to accommodate other financial obligations and the needs of the taxpayer while still satisfying IRS or state taxes owed.

Once approved, you may have to pay some setup fees based on your plan. Then it’s up to you to choose a payment method. The IRS takes electronic debit payments, an automatic bank withdraw plan, check, money order, or credit card payments. The IRS offers an online system for checking payment history, reviewing your direct debit settings, and more so you can see that you’re reducing your balance over time. The payment method you choose may also include its own processing fee, so consider your payment options carefully.

It’s important to note that interest and penalties will continue to accumulate until the balance is zero, even though you may be making required payments each month.

That said, the Internal Revenue Service doesn’t describe every type of agreement and payment plan type, because they can vary wildly based on what an individual taxpayer can do. You do have more than convenient payment methods to choose from. You can choose a fair payment plan while doing everything you can to avoid additional charges so that you’re not making electronic payments to the IRS years after your original filing.

Short-term Payment Plan

If you owe $100,000 or less in taxes, interest, penalties — and have filed all your income tax returns — then you could qualify for an installment agreement with a short repayment period, usually 90 or 180 days. Plans like this are designed for individual taxpayers to pay off taxes owed in either 90 or 180 days. This plan is designed to give you a shorter repayment period and help resolve tax obligations fast.

The benefits of a Short-term Payment Plan include avoiding potential collection action and reducing the overall amount owed by paying off the taxes owed sooner. Additionally, setting up a payment plan demonstrates a good-faith effort to fulfill tax obligations, which may help prevent additional penalties and fees.

Long-term Payment Plan (Installment Agreement)

If you owe $50,000 or less in taxes, interest and penalties, then you’d qualify for a long-term payment plan installment agreement. (Of course, you do have to file all required tax returns before requesting an installment agreement.)

Low-income taxpayers may be eligible for reduced or waived user fees when setting up a long-term payment plan. The IRS determines eligibility based on the taxpayer’s income and financial situation.

You can use the Online Payment Agreement (OPA) application on the IRS website to make a long-term payment plan request or submit Form 9465, Installment Agreement Request, with their tax return, or call the IRS directly.

Setting up a long-term payment plan helps taxpayers avoid potential collection actions and allows them to pay off their taxes owed over time. By making timely monthly payments, individuals can gradually reduce their overall balance and fulfill their tax obligations.

This form of Installment Agreement exists to allow taxpayers to finish payment on a large expense, such as a car loan or child support payments without having to pay a late payment penalty to the IRS when they do start making required, timely payments. This plan begins with a divided payment schedule in which the larger balloon payment gets the main focus and small installments are collected on the unpaid tax balance. Once the outstanding balance on the initial expense is completed (usually within 12 months), the taxpayer switches the entire payment to the back taxes over the following 48-60 months. This program eases the stress of tax payments without causing other financial obligations to default.

This type of installment agreement comes with a couple of strict guidelines that determine an individual’s eligibility. There are some added benefits that make this program worthwhile, such as not having to disclose all of a taxpayer’s financial information to the federal or state tax agency. The assessed or actual tax balance owed must be less than or equal to $50,000. Additionally, the total balance, which includes accrued penalties and interest, must be paid to the IRS or state within a 60-72 month period. This arrangement is ideal for taxpayers who don’t want to deal with payments over time and have substantial assets or disposable income.

A partial pay plan option comes with more complicated recordkeeping but it’s also one of the most economical of payment plan types. Taxpayers making this payment plan request will have to disclose all financial information and documents to the IRS to be accepted.
Community Tax negotiates a hardship payment based on the taxpayer’s current financial information. This hardship payment is less than the monthly payment needed to satisfy the taxes owed in full.

The IRS has a 10-Year Statute of Limitations in which they can collect on past due taxes owed The PPIA payment will be made for the duration of that 10-year period, but will not pay the tax balance in full by the time the IRS can no longer collect on the taxes owed. Essentially, this payment plan option lets you agree to pay as much as you can for as long as they’re allowed to collect. After 10 years, the clock runs out and you’ve paid all you need to.

As one of the more accommodating agreements, a conditional expense agreement allows taxpayers to continue paying a long-term monthly bill or expense(s) while still addressing their tax lien. Those that qualify for this agreement must have a steady payment schedule for something like a 401k program or a credit card that they are required to keep.

The conditional agreement usually lasts for 60 months and pays the balances in full.

During this time, you have to do three things:

  1. Make payments to the IRS in the agreed amount.
  2. Continue to pay their conditional expense(s) and submit proof via payment slips, etc.
  3. Give the IRS any required financial documents or records.

This program allows a taxpayer to continue their current lifestyle without disruption while also paying back their IRS taxes owed in full.

Traditional Installment Agreement

This straight-forward payment option is a simple installment plan. Instead of making a balloon payment or a different payment upfront, this payment agreement option lets you pay off the entire taxes owed in monthly installments spread over 10 years.

This program removes the stress of trying to make a full one-time payment and grants the taxpayer peace of mind. This program allows the taxpayer to pay-off their taxes owed obligations over time without being at risk for a levy or wage garnishment.

Currently Not Collectible Status

If you’re in financial hardship, there is a way to be completely relieved of your IRS taxes owed. This is less of an installment payment option and more of a way to delay collection of your federal tax lien. Currently Not Collectible Status removes the taxpayer’s tax balances from active collections with the IRS.

A taxpayer provides documentation of their current financial condition and current agreement. If such documentation shows that the taxpayer cannot meet their basic obligations, let alone their tax liability, the IRS will declare a financial hardship. As the Statute of Limitations on a taxes owed is 10 years, the individual must continually file their tax returns and provide any requested information to the IRS in a timely manner. Anytime a taxpayer receives a raise or has their income to expense ratio change such that they are no longer in financial hardship, they may lose their Currently Not Collectible Status. At this point, a new payment plan may be drawn up to settle the balance with the IRS based on the new financial situation in which the taxpayer finds themselves. The Currently Non Collectible Status allows taxpayers some relief while they try to improve their financial condition.

Penalty Abatement

Penalties can quickly turn a taxes owed situation from bad to worse. With our penalty abatement assistance, the added penalties to tax obligations may be removed. Remember, a penalty abatement only applies to penalties. The IRS does not currently abate interest. To accomplish a penalty abatement, an individual can submit proof that they missed payments or filing deadlines or other noncompliant behavior for uncontrollable reasons. In addition, they must show that they are working to rectify the problem by filing any missing forms or returns and paying the required balances.

Worried about your taxes? We can help.