What is an IRS Streamlined Installment Agreement

Joe Valinho
Expert Contributor
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Last Updated on

What is an IRS Streamlined Installment Agreement?

If you owe back taxes, you have the option of paying the full amount you owe in installments. Most taxpayers qualify for an installment agreement because it has simple qualifying criteria. If you have the ability to pay your full back tax amount, then installment agreements can be the right choice for you. A Streamlined Installment Agreement is a type of installment agreement where you pay your tax debt within 72 months if you owe less than $50,000 in back taxes.

How to Qualify for a Streamlined Installment Agreement

A Streamlined Installment Agreement is only for those taxpayers that owe $50,000 or less in back taxes. You can calculate the total amount of back taxes you owe by including your unpaid tax bill, assessed penalty and interest, and any other assessments on the tax module. If you divide that amount by 72 (months – the payment period), then you get the minimum amount you will need to pay each month.

It’s important to calculate the amount of back taxes you owe correctly because the IRS will ask you to pay the full back tax amount. If your unpaid tax bill, including penalties and interest, comes over $50,000, then you won’t be able to apply for a Streamlined Installment Agreement.

What is an IRS Streamlined Installment Agreement

The amount you owe needs to be paid off either within 72 months or before the Collection Statute Expiration Date (CSED), whichever is earlier. The IRS does not ask for a financial statement in this situation, making it easier and quicker to qualify for this agreement.

Apart from the dollar cap, there is another basic qualifying factor for an IRS Streamlined Installment Agreement. You need to file all your tax returns before you can apply for this agreement. This holds true for all IRS tax debt resolution plans.

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Making Payments under a Streamlined Installment Agreement

If your tax debt is between $20,000 and $50,000, you need to make the payments as a Direct Debit Installment Agreement or a Payroll Deduction Installment Agreement. The total amount owed needs to be paid within 72 months from the day the agreement starts.

For any tax debt resolution plan, individual taxpayers whose tax debt is over $25,000 need to make payments using Direct Debit. For businesses, the tax debt amount is much lower at $10,000 for it to be paid by Direct Debit.

If you are unable to pay an installment after entering the agreement, the IRS estimates your financial capability to pay the installments.

You can apply for a Streamlined Installment Agreement in person, through postal mail, or by phone. However, before you choose to apply, make sure that you qualify for it and can fulfill all the payment requirements.

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The Impact of Penalties and Interest on Back Taxes

When using a Streamlined Installment Agreement for paying back taxes, it is important to consider IRS penalties and interest. Until you pay the full tax debt amount to the IRS, penalties and interest continue accruing on the balance.

There are two types of penalties the IRS charges on back taxes: penalty for failure to file and penalty for failure to pay. For failure-to-file your tax return, the penalty charged is 0.5%. For failure-to-pay your tax bill, the penalty charged is 5%.

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If there are both failure-to-file and failure-to-pay penalties, the total penalty charged is 5%. Penalties are charged every month until you file your return or pay back your total tax debt.

These penalties keep on accruing even after you enter an Installment Agreement. The more you pay and the sooner you pay your tax debt will reduce the amount in penalties. Keep penalties in mind when determining the amount you pay in each installment. If you can afford to pay more initially, it will save you more on penalties and interest.

Along with penalties, any back tax amount also accrues interest. Even if you have entered an Installment Agreement, interest will continue to accrue on any back taxes amount that remains to be paid. The IRS charges interest at the federal short-term rate plus 3%. It is charged quarterly and compounds daily.

It is because of penalties and interest that the back taxes keep on increasing over time. The sooner you pay, the less amount in back taxes you will need to pay.

Tax Liens

In the case of a Streamlined Installment Agreement, the IRS usually does not place a lien. However, if the revenue officer sees fit, the IRS may place a lien, but that is rare.

What If I Don’t Qualify for a Streamlined Installment Agreement?

Suppose you don’t qualify for a Streamlined Installment Agreement. In that case, there are other Installment Agreement payment plans that you can explore, such as a Guaranteed Installment Agreement and a Non-Streamlined Installment Agreement.

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If you cannot pay your full tax debt, you have options such as an Offer in Compromise and a Partial Payment Installment Agreement. If you cannot pay any of your tax debt, you may try for the Currently Not Collectible status where the IRS stops all collection actions and delays payment until your financial condition improves,

Whatever amount you owe in back taxes, a resolution can be achieved. If you owe less, the procedure is quick and simple, like in a Streamlined Installment Agreement. IRS agreements like these are processed quickly since the IRS doesn’t ask for a Collection Information Statement to process Streamlined Installment Agreements applications.

Hiring Help for Tax Debt Resolution

Most taxpayers are unfamiliar with IRS rules regarding tax debt resolution. They may need help choosing the right resolution plan, applying for it, and entering into an agreement with the IRS.

If your tax debt case is straightforward, you may approach the IRS by yourself. However, if you need to negotiate with the IRS, have other debts, need tax debt reduction, challenge the IRS claims, and so forth, it is best to hire a professional to handle it. A tax attorney or a tax resolution service can provide you with a more beneficial resolution where you can come out of tax debt more comfortably and quickly.

Even the most difficult cases of tax debt can be resolved with the right help. Before you hire a service, do your research, and get to know the basics of tax debt resolution. It will help you immensely in getting yourself the right tax help. If you are confident in handling it yourself, you can go through the qualifying guidelines for each payment plan and apply for the appropriate payment plan using which you can comfortably resolve your back taxes.

Joe Valinho
Expert Contributor
Last Updated: