There are many taxpayers that end up owing money to the Internal Revenue Service come tax time. In some cases, the total amount reaches the thousands, which most people cannot afford out of pocket. It can be unnerving to realize you are responsible for paying a large sum to the federal government, but rest assured there are options to satisfy your debts.
The IRS offers a method of repayment that makes it easier to tend to your outstanding balance.
Through an installment agreement, taxpayers are able to make payments on a monthly basis based on an amount of money that is reasonable to pay until the balance is cleared — without worry of collections or liens.
How they work
If you owe less than $50,000 including in interest and penalties, you can complete Form 9465-FS Installment Agreement Request to apply for the repayment plan. For people owing more than $50,000, there are additional documents that need to be completed.
You must note how much you owe in taxes and provide a reasonable repayment amount you are able to afford each month until the debt is paid off. There is a $25 minimum amount that must be repaid each month. The IRS reserves the right to refuse an application if the repayment amount is not considered reasonable, so it is best to set the highest monthly payment as you can afford in order to repay the debt in the fastest period of time.
There are fees associated with establishing an installment agreement. You will pay a $105 fee for a standard agreement. With a direct debit payment agreement, the fee drops to $52. Taxpayers with incomes below a specific level may qualify for additional assistance and their fee will also be lowered to $43.
Keeping up with financial obligations
An installment agreement can be voided if the taxpayer fails to adhere to making monthly payments. Any refunds from subsequent tax years can be directly applied to reduce your existing balance even if you are still making monthly payments as per your agreement.
Even though you have made payment arrangements on your tax debt, interest and penalty fees will continue to accrue. If there is any reason why you cannot make a scheduled payment during any month during your agreement, you must contact the IRS immediately to prevent your account from going into default.
Are multiple agreements allowed?
If you end up owing more taxes in the following year, you may be able to arrange ongoing payment arrangements through a revised installment agreement. The IRS does not have to approve the added debt to your existing agreement but it is something they will consider, provided you have shown evidence of working to avoid owing tax debts in the future. This may include setting up quarterly tax payments. You may also need to adjust your withholdings through your employer so more taxes are being taken out through the year to prevent a balance owed.
The Internal Revenue Service may be willing to work with you to ensure the debt is repaid as soon as possible. However, if you ignore the tax debt and do not make contact with the IRS, they may be less than willing to approve assistance and you will need to pay the total amount due in a short period of time or face potential assets liens until the debt is repaid including interest and penalties.
Due to the accrual of interest and penalties over the life of your tax debt, it may be wise to consider other financial resources you have to satisfy the debt in full as soon as possible. If you are unable to secure enough money to repay the debt in full, an installment agreement with the IRS may your best course of action.Related