Unpaid tax debt is not uncommon, but it’s not something that you should take lightly. If you owe money on your taxes, you must take action to settle with the IRS. There are several options for doing so that range from having the debt lowered or deferred to settling your debts immediately with a full payment.
Explore your options to pay IRS in installments with our reputable IRS debt relief experts so you can choose a plan that’s appropriate to your financial situation. There are several different ways that you can take care of unpaid tax debt, with something to suit any business or individual. The only wrong approach is taking no action at all.
If you have unpaid tax debt, you may or may not be required to pay it off in full. Before setting up an IRS installment plan, you should consider whether you can have the sum that you owe reduced. One option that may be available to you is called an offer in compromise (OIC). If the IRS accepts an OIC from you, you can settle your debt for less than the original sum.
You may qualify for an offer in compromise if you:
If your application for an OIC is accepted, you must pay the lower, agreed-upon, sum through a lump sum cash offer or a periodic payment offer.
Another option you may qualify for unpaid tax debt is a status known as “currently not collectible.” If you’re suffering from financial hardship and have little to no money left after paying for essential living expenses each month, you can request that the IRS classifies your debt as currently not collectible. This doesn’t make your tax debt go away, but it will cease collection activities.
Under this status, your unpaid tax debt is essentially placed in deferment. If your financial situation changes and you have more money available to you at a future date, you will need to move forward with setting up the appropriate payment plan for your unpaid taxes.
There are certain thresholds that you must meet to set up a tax installment plan with the IRS. How much you owe plays a big role in the solutions that are available to you. The IRS offers both short-term and long-term agreements. A short-term agreement requires repayment in 120 days or less. You qualify for a short-term agreement if you owe less than $100,000 in combined tax, interest, and penalties.
A long-term agreement gives you more time to pay. With this agreement, you will pay off your debt over more than 120 days. You qualify for a long-term agreement if you owe $50,000 or less in combined tax, interest, and penalties.
There are several different types of installment plans available for unpaid tax debt. As an individual, you will most likely opt for a simple individual installment agreement. This plan is available to anyone who owes less than $50,000. You will make monthly payments on your tax debt with interest added until the sum is settled. The maximum term for this type of plan is 72 months.
If you owe more than $50,000, you will need to file additional paperwork to apply for a payment plan. You will need to provide a detailed Collection Information Statement that details your income and financial situation. You must also pay down your debt to $50,000 or less with your first payment to qualify for a monthly installment plan going forward.
If you’re a business owner that owes back taxes, you may qualify for a third option, known as a small business installment agreement. If you owe $25,000 or less in taxes, you can apply for an In-Business Trust Fund Express agreement. This allows you to pay your taxes over a 24-month period. If you owe more than $10,000, you must do so through a direct debit plan.
There are set guidelines that will determine your minimum payments when you pay the IRS in installments. You must divide your unpaid tax debt over the maximum term allowed on your particular payment plan to find your monthly minimum. If you’re in a difficult financial situation, you may need to go with the smallest monthly payment available to you.
If, however, you’re able to pay more than the minimum amount, you can settle your tax debt sooner. This will relieve you of this financial burden in a shorter amount of time, which will ultimately help you advance toward a debt-free goal faster.
If you don’t set up a payment plan in time, the IRS may issue tax levies or tax liens to try and collect the money that’s owed to them. A tax lien is a legal claim against your property. The government can use a tax lien to seize your real estate, financial assets, or personal property. If you do nothing, a tax lien could result in the loss of your home, vehicle, or other important assets.
A tax levy is the culmination of the tax lien. The lien establishes the government’s legal claim to the property. The tax levy is the action that removes the property from your possession to satisfy the debt. If you ignore the tax lien, you will receive a Final Notice of Intent to Levy and Notice of Your Right to A Hearing 30 days before the levy. If you do nothing, the levy will proceed you will lose your property.
Setting up an IRS installment plan is much easier than you may think. It is simply a matter of submitting the right forms, many of which can be completed online. You can also call the IRS directly to set up a payment plan. If you’re having trouble choosing the right payment option, our debt relief specialists can help you navigate your options and find the right approach.
You will choose your payment method when you set up your installment plan. You can pay most installment agreements with:
Once you’ve established a payment plan, you can monitor and change it online or by phone. You will also receive paper statements each month that will help you track your past payments, keep an eye on the remaining balance, and see your interest, fees, and other expenses associated with the payment plan.
It’s important to set up a tax payment plan as soon as possible. If you owe back taxes, the IRS will issue a notice demanding payment. Respond to this immediately. Waiting will give the IRS time to issue a tax lien, as mentioned previously. Once you’ve reached this stage, it’s more difficult to negotiate monthly payments.
Once your tax payment plan is in place, it’s important to keep up with your monthly obligations. There are additional penalties and fees if you don’t make your payments on time. If you skip your payments entirely, the IRS can revoke your plan entirely. You may forfeit the option to make these payments altogether and find yourself facing more serious penalties.
It typically takes the IRS between 30 and 60 days to revoke a payment plan after your first missed payment. You will receive a warning in the first instance, which gives you a chance to get back on track. If you continue to miss payments, the IRS is more likely to revoke your plan as soon as you’re late. If you’re concerned that you cannot make your payments as agreed upon, speak with our advisors to explore your options for getting your finances back on track.
If you don’t pay your tax debt in a timely manner, you’ll be subject to many financial consequences. The best option is always to file your taxes on time and pay them in full if you’re financially able. If you don’t file your taxes on time, a late penalty is applied to everything you owe. This is 5 percent of your owed taxes, or a minimum of $135.
For every day that you don’t settle your debt with the IRS, interest compounds, accumulating on the owed amount. The late payment penalty begins at .05 percent and increases up to a maximum of 25 percent for every month that the debt goes unpaid.
If you owe taxes but cannot pay them on time, these payment options don’t come free. The IRS charges an interest rate, typically between 4 and 6 percent, on your debt. There is also a fee associated with setting up your payment plan.
If you owe a significant tax debt, this means that you didn’t pay enough in taxes during the course of the year. If you don’t resolve this core issue, you’ll end up owing money on your taxes in future years as well, eventually digging a hole that it can seem impossible to get out of. If you owe a tax debt this year, look for the cause of that debt to see if you can resolve it for future tax years.
If you have a traditional job where your income is subject to withholding, you may want to consider increasing the amount that’s withheld from each paycheck. You can do this by filing a new W-4 form with your employer.
If your income isn’t subject to withholding, you should make estimated tax payments. If you’re an individual, whether you’re a sole proprietor, partner, or S corporation shareholder, you should make estimated payments throughout the year anytime you expect to owe $1,000 or more on your tax returns. If you do not make the estimated payments, you’ll be subject to an additional penalty when your taxes are due. Increasing the amount of your estimated tax payments each quarter may help you avoid outstanding taxes at the end of the year.
You’ll know whether you have an outstanding tax debt as soon as you file your taxes. If you owe more than you can pay immediately, you should take action to find a repayment plan that works for your financial situation. Don’t wait for the IRS to start issuing warnings.
Reach out to the tax relief staff at Solvable to learn more about how you can settle your IRS tax debt in the quickest, smartest, and most affordable means possible. Connect with us and learn more about your options today.
Image via Flickr by Alan Cleaver