If you are unable to pay your taxes in full, you might qualify for a payment plan with the IRS. The factors that will determine the best plan for you are the amount you owe, how much time you need to pay it off, and whether you owe individual or business taxes. With certain types of agreements, you can self-qualify, apply, and get immediate approval online through the Online Payment Agreement (OPA) application on the IRS website.
What You Will Need
Before you apply for a payment agreement, make sure you filed all tax returns for previous years to avoid penalties for not filing. Then, go over your tax return and verify the amount you owe, including any penalties and interest. It might be a good idea to have a tax specialist help you with this step. Seek the advice of a tax attorney or CPA if you owe $10,000 or more, as your tax return will be more complex.
Collect all financial records of your earnings and expenses, such as bank and credit card statements, assets and liability documents, and pay stubs. You will also need to prepare personal records for the three months before the tax due date.
When you apply online, you will need:
Short-Term Payment Agreement
A short-term payment agreement or extension will give you up to 120 days to repay your tax debt of $10,000 or less. This plan is free of charge, except for penalties and interest. Although this plan has no minimum monthly payment, it is best to pay as much as you can manage to avoid interest accrual. To apply for this plan, file online or mail Form 4868, Application for Automatic Extension of Time to File.
Individual Installment Agreement
An individual installment agreement is for individuals that owe under $50,000 and need more than 120 days for repayment. You will decide on the monthly amount and set automatic payments deducted from your checking account, payroll, credit card, or an Online Payment Agreement Application.
With a streamlined installment plan, you get 72 months to pay your tax debt. Unless you negotiate another monthly payment amount, your default minimum payment will be your total balance divided by 72. Whatever plan you sign up for, keep in mind that the IRS regulations require collecting any debt within 10 years. For debts between $25,000 and $50,000, you’ll need to provide income and expenses paperwork to the IRS to get enrolled. You may file your application either online or fill out Form 9465, Installment Agreement Request.
Individual Agreement Fees
Depending on how you make payment and whether you have set up an online account or not, your fees will differ. As of November 2018, the fee for an installment agreement are as follows:
High-Debt Installment Agreement
High-debt installment agreements for tax debt greater than $50,000 are more complex to set up and cannot be done online. You will also need to provide the IRS with additional financial documents, including any credit accounts, assets, monthly earnings, and living expenses.
Typically, it is hard to qualify for an installment agreement when you own more than $50,000. However, you should still consider it if you can’t pay your taxes in full. Try to explain your situation to the IRS and support your case with any relevant documents. To apply, file Form 433-F, Collection Information Statement. The same fees apply as in individual installment agreements.
Small-business agreements are for small-business owners with business tax debt under $25,000. You may apply for this agreement online. Your forms will differ from individual installment plans. In addition, you will have to file an In-Business Trust Fund Express Installment Agreement (IBTF-IA). Typically, you will have 24 months to pay your debt. For debt amounts between $10,000 and $25,000, you will need to enroll in a direct debit installment agreement and pay $31.
The undue hardship extension plan is for those instances when making payments under any of the above plans is extremely difficult. To qualify for this plan, you will need to prove the case of undue hardship and provide the IRS with statements of assets and liabilities, such as student or auto loans and retirement accounts. In addition, you must include an itemized list of income and expenses for the three months prior to your tax due date.
Once you are approved, your late payment fees will be pardoned, and you will get an extension from six to 18 months. To apply for undue hardship, file Form 1127, Application for Extension of Time of Payment of Tax Due to Undue Hardship.
Offer in Compromise
If none of the above plans work for your situation, you might consider an offer in compromise. Under this agreement, you will negotiate with the IRS to reduce your balance. Be ready to provide information about your credit lines, assets and liabilities, and monthly earnings and expenses.
This last-resort option is only granted if you prove to the IRS that you will experience economic hardship from paying in full, or if your tax debt is more than your income and assets. File Form 656, Offer in Compromise, along with the application fee of $186.
Even if you feel overwhelmed with your tax debt, remember that the IRS offers payment options for a variety of situations. Hopefully, this overview of payment agreements gave some clarity and peace of mind. For more information on different tax debt relief programs, contact Solvable. Our debt specialists will help you work out the best solution for getting out of debt.