What to Know About IRS Installment Payments

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Staff Writer - Angela
October 30, 2018

Thing’s aren’t looking good. You’ve hit rock bottom. Tax debts are at your doorstep and you have no way to make the payments — or do you? If that description sounds applicable to you, then keep reading. No solution is going to be completely flawless, but setting up IRS installment payments may just be the thing you need to get back on your feet and get out from under mountains of debt.

What Are Installment Payments?

If you’re in a situation where you simply do not have the money you need to pay the IRS on time, then you may want to apply for an installment agreement. This payment option allows you to incrementally pay off your debt over time rather than in a single payment. If you just need some time to get your life in order, then that gradual payment could be a lifesaver. There are a wide variety of different specialized plans depending on how exactly you want to pay and what you qualify for.

Downsides

There is one glaring problem with installment payments: Late penalties and interest on the debt over time will still apply as usual. You should also be very careful when negotiating your installment agreement. It’s possible that the payment plan you end up with won’t even go so far as to pay off the interest of the debt despite making regular payments. Make sure the amount you are paying leaves you with enough for living expenses but also lowers your debt over time.

Short-Term Payment

What sort of different installment plans are available? If you’re an individual with less than $50,000 in debt owed to the IRS, you have the option of a short-term payment plan. With this plan, you will pay off your debt within 120 days. Regardless of how you apply for this plan, there will be no fees for the setup. Given that you should have your debt for a maximum of four months under this plan, you should only face one round of interest at most.

Long-Term Payment

There are also long-term payment options. The main difference between the two long-term installment payments is how exactly you pay your debt. If you wish to pay with direct debit through a Direct Debit Installment Agreement, you’ll apply online for $31. You’ll be charged $107 if you apply through the mail or by other means. If you want to make payments with something other than direct debit, then the online setup with cost $149 and $225 with any other method.

As a side note, if you classify as a low-income taxpayer, you may be able to mitigate, waive, or reimburse the setup fee for the long-term plans.

Minimum Payment

With all these plans, you can decide for yourself how much you intend to pay each month. However, even the long-term plans have a limit on how far they can last. Currently, that limit is six years. If you want to know the minimum monthly payment, take your total debt and divide it by 72. You can always pay more than the minimum if you want to. In fact, it’s advisable to do this as long as you can afford it. Doing so will reduce the amount of interest that accumulates over time on the debt.

Larger Debts

When your debt to the IRS is above $50,000, that’s when things become significantly harder. Unlike the previous installment agreements, you will be required to fill out Form 433-F. This form will ask you to provide information about your household, assets, income, expenses, and the like. After this comes your negotiations with the IRS. You want to have an installment agreement go through, and depending on how dire your situation, you may have to fight tooth and nail for a plan that works for you.

Here are a few things you’ll want to do to make sure this process goes as smoothly as possible:

  • Make sure the IRS has everything it needs from you: tax returns, payroll tax deposits, or whatever else is necessary. Get it all in or there’s no way it’s going to hear you out.
  • Don’t promise to pay more than your income minus your living expenses. Missing a payment is the very last thing you want to happen.
  • Whatever your proposed monthly payment is, try to send that amount in every month while the collector is still mulling over your plan. If you demonstrate your ability to make the payments, then it will be easy to convince the collector that your proposal is viable.

With all that said, it’s also not inconceivable for the collector to reject your plan under some conditions:

  • In your Form 433-F, you may have provided living expenses that the collector deems to be out of your means. Until you cut back on some of the more lavish expenses, it will be difficult to prove to the IRS collector that you are making the most efficient payments.
  • Details in your Form 433-F do not truly represent your income or your assets. If there is some evidence that you were not being transparent with the IRS, then it will be difficult to get their help again.
  • You’ve failed to meet your payments on a past installment agreement. If you have a poor track record, then the burden of proof is going to become all the heavier in the eyes of the collector.

Installment payments are not the best path for everybody in every situation. If your incremental payments are too slow, then you’re going to find yourself having trouble keeping up as the interest piles on. Still, it is a tool available to you if you don’t see any better way forward.

 

 

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