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Tax Installment Agreements

Get Tax Debt Help with an Installment Plan

If a taxpayer is unable to pay their federal tax debt one of the most popular IRS tax settlement options is the Installment plan. Although this is a popular option, it may not be the best option because the installment agreement will allow penalties and interest, which could be as high as 8-10%, to continue to accrue each year until the IRS tax debt has been paid. To use an installment plan a taxpayer must also be up to date on all past due tax returns and current on quarterly tax payments if they are self-employed.

It will always be less expensive to pay IRS tax debt in full, if possible, to minimize penalties and interest. Unfortunately, personal or financial circumstances may make it impossible to pay IRS tax debt, if this is true for you, an Enrolled Agent, Certified Public Accountant or Tax Attorney can discuss the option of establishing an installment agreement to allow more time to pay your Internal Revenue Service tax debt under more manageable terms.

Applying for an Installment Agreement:

  • If a taxpayer owes $25,000 or less in combined tax, interest and penalties, the Internal Revenue Service will allow them to complete a Request for Installment Agreement (Form 9465) online and send it to the address on the tax bill.
  • If a taxpayer owes more than $25,000 in combined tax, interest and penalties, it is possible to still use an installment agreement but the Collection Information Statement, (Form 433F) has to be completed.

A Tax Professional can help determine if an installment agreement is the best way to pay IRS Tax Debt. If the taxpayer decides to apply for an installment agreement, written notification will be sent from the IRS to tell them if the installment agreement application is accepted or if it will need to be modified. It may be also be possible to update or change an already existing installment agreement for a minimal charge.

An experienced Enrolled Agent, CPA or Tax Lawyer can help determine what financial resources you have available to successfully complete an installment agreement. It is important to develop a plan that will allow you to pay the IRS tax debt, but will leave extra funds to pay for all your needed living expenses. It is important to get the installment plan right the first time because it can be difficult to renegotiate an installment agreement after it has been accepted. It is possible to make voluntary payments prior to the approval of your installment agreement to establish credibility for your installment agreement plan.

If the taxpayer installment agreement is accepted, the IRS will generally not proceed with an enforced collection action. In addition, they may also stop enforced collection actions for thirty days after the installment agreement request has been rejected, during the appeal process or throughout the evaluation of the installment agreement.

Installment Agreement has been rejected

If your installment agreement is rejected there may be several reasons.

  • 1. The IRS believes you can pay more than you have offered to pay. If your living expenses are too high because of unnecessary costs, the IRS may deny your application.
  • 2. The IRS believes you have given incorrect or untruthful information on your installment agreement form.
  • 3. You have failed to complete previous installment agreement plans. This will not automatically result in a denial of your installment agreement form, but it will not help.

Making Installment Agreement Payments

There are several methods of payment allowed with an installment agreement, but the IRS recommends that the taxpayer use either direct deposit, which is an electronic payment directly from a checking account, or establish a payroll deduction which is taken directly from the taxpayers wage or salary.

There are other payment options available including a credit card, money order, certified funds, cash payment (only in person) or a business/personal check. The IRS prefers electronic payment or payroll deductions to ensure they receive time IRS tax debt payments and to reduce the likelihood that the tax payer will default on their tax debt payment, but as the taxpayer it is up to you to decide what type of payment option works best for you and your family.

All taxpayers who have entered into an installment agreement must make timely payments. Defaulting on the installment agreement will allow the Internal Revenue Service to file a Notice of Federal Tax Lien or take other enforced collection actions against you.

If a taxpayer is eligible for a refund all refunds are applied to the IRS tax debt owed. Refunds can also be applied to additional debt including student loans and child support. After the Internal Revenue Service applies the refund amount to the outstanding IRS tax debt, if there is additional tax liability the installment agreement terms continue until the tax debt is paid in full per the agreement.

Costs for establishing an Installment agreement

After January 1, 2007, the cost to establish an installment agreement is $105. If an installment agreement is done with a direct deposit, the cost is $52. If a family's income is at or below the poverty level as defined by the Department of Health and Human Services guidelines, they may be eligible for a lower fee of $43 if the installment agreement is made using a direct deposit from their bank. The Internal Revenue Service will provide information about all installment agreement fees when they send the acceptance letter to you.

If a taxpayer defaults on an agreement or if they wish to restructure or modify an already existing installment agreement as of January 1, 2007, there is a fee of $45.