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You’re about to have trouble paying for another year of taxes while already having an IRS installment payment due. You’re desperate to know where you should go from here. Is it’s possible to have multiple installment agreements with the IRS? Let’s take a look at what installment agreements are before we get to the heart of the matter. It’s important to know all this to understand why the IRS works the way that it does.
How Do They Work?
You have a few options moving forward if you find that you have taxes due to the IRS and you are unable to pay on time. You could request an extension on the IRS installment payment and take the penalties and interest. An extension works if you’re confident that you’ll be able to gather the necessary funds in six months. Filing for bankruptcy is available as a last resort. Another option is an installment agreement which works a little differently.
Installment agreements with the IRS are payment schedules established by you and the IRS. You can make payments over time if you aren’t able to pay your taxes in full. Contact the IRS to initiate a payment installment. Try your best to do this through online methods as the setup fee for talking to a representative on a phone or in-person is more than double the cost of doing it online. Doing it yourself will have a higher risk of accidentally doing something wrong, but the IRS will help rectify any problems that arise.
The setup fee could be waived or reimbursed to you after your finished paying off your back taxes if you qualify as a low-income taxpayer. Follow this link here to see if your income falls into the low-income range. Take note that the amount varies based on where exactly you live.
Types of Payments
There are two types of installment agreements that you can make with the IRS. There are short-term payments for if you intend to pay throughout 120 days. You won’t be facing too much interest and penalties if you’re going this route. The IRS won’t even charge you any service fee for this type of installment agreement. It’s also doubtful that you’re going to face another year of taxes without having paid this off first, so it has little bearing here.
The other kind of IRS installment payment is a long-term agreement that will last over 120 days. These can potentially be paid off in as long as six years. During that time, it will be possible to face other back taxes to the IRS that you also can’t fully pay off in time. What happens in that case? Are you allowed to start a second installment agreement while the other one is in effect?
It is not possible to have two installment agreements with the IRS at the same time. If you have not completed your original agreement, then you will default on the existing IRS installment payment. Defaulting means that the current agreement will be canceled and you will have to set up a new one. If you default on your payment like this, then it will become more difficult for you to negotiate agreements with the IRS in the future.
You’re going to have to convince the IRS that whatever new payment plan you propose to them is going to work better than the last one. That’s not the only factor making this new installment agreement more difficult though. The secondary back taxes that triggered the default isn’t just going to disappear. It will be added to whatever amount you were paying before. You’re either going to have to extend the repayment period it or increase your monthly payments.
The Breaking Point
Everything mentioned up to this point has been assuming that even with the second layer of back taxes, you will owe less than $50,000. The process of creating an agreement with the IRS will become much more complicated if you default on your payments and the culminate back taxes surpasses that amount. While the IRS will mostly leave you to your own devices for back taxes under $50,000, they’re going to start questioning your ability to pay your back taxes past that.
The IRS will demand that you fill out Form 433-F. You will tell the IRS about your assets, income, and living expenses in that form. After you complete this, you’ll be assigned a collector by the IRS who will work with you to create a comprehensive plan to pay off your outstanding back taxes. This collector will have some control over your back taxes and will be the main deciding factor in whether you get your preferred installment agreement or not.
There’s also going to be the issue of penalties and interest being applied to your back taxes as well. Be certain that whatever monthly payments you’re making means that your back taxes will decrease over time. There are cases in which people pay just as instructed, yet find that their back taxes has only grown as payments have only covered the interest and penalties. This is only a concern for larger amounts over $50,000 though, as interest at lower amounts is fairly manageable.
Making adjustments to your IRS installment payment plan is relatively easy when your back tax amount is under $50,000. You can go online, pay a small fee, and be on with your day. When you have a collector controlling your back taxes, you will have to convince them that whatever changes you’re proposing are both necessary and viable. If the collector concludes that you won’t be able to make more substantial payments successfully, then you’ll have to accept whatever plan you’re on.