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If you cannot pay your tax debt in full, you can apply for a payment plan with the IRS, known as an installment agreement. An Installment Agreement is granted to taxpayers who would like to pay off their debt in smaller monthly increments. This tactic can help reduce penalties like tax levies from unpaid taxes, and the amount paid may be the full debt amount or a lessened value.
These agreements can be negotiated, but ultimately the amount owed each month is up to the discretion of the Internal Revenue Service. There are a variety of different installment agreements: a streamlined installment agreement, partial-pay installment agreements, and stair-step installment agreements. Regardless of installment agreement, taxpayers approved for this type of payment plan must be sure to never default or miss a payment.
If you owe more than $50,000 and you can’t reasonably pay your tax debt off within six years, you’ll need to work with a tax professional to devise an installment agreement the IRS will approve. You’ll propose a payment plan that offers the IRS the amount of your monthly income minus your essential living expenses. It’s important to begin sending in monthly payments after presenting your offer; the IRS is more likely to approve an installment agreement if you’re making viable steps towards settling your tax debt. There are numerous ways to pay, but installment agreements do come with fees.
You can make on-line payment, send in a money order or check, pay by credit card, and over the phone, but some of these options are better than others in terms of fees. Currently the fee for an installment agreement can range up to $120, but choosing on-line payment can decrease this fee amount. Direct Debit payments pull money directly from your checking account each month, and this can be a wise route for taxpayers who want to avoid missing a payment unintentionally. So long as the account is open and filled with sufficient funds, you won’t need to worry about making a payment on time.
If you owe more than $50,000, you’ll have to submit both Form 433-F and Form 9465. Keep in mind that a tax debt with an outstanding balance of over $50,000 cannot be completed online; it must be done through mail or in-person.
There is also a small business installment payment agreement for companies that owe less than $25,000 in back taxes. This is known as an In-Business Trust Fund Express installment agreement. You must currently have employees to qualify; if approved, you’ll have 34 months to fully pay off your tax debt. If your debt is under this threshold but over $10,000, you must pay through a Direct Debit installment agreement. This can be a great option for a start-up business that has found itself in trouble during its first few years of operation.
Keep in mind that you cannot default on your payment agreement; should you miss a payment, you may face a failure-to-pay penalty and the Internal Revenue Service could revoke your installment agreement.