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INSTALLMENT AGREEMENTS TO PAY FEDERAL INCOME TAX

The Internal Revenue Service recognizes that the payment of large accumulated balances of back taxes can be very difficult. The Service has several installment payment arrangements available to reduce the burden of paying back income taxes. To qualify for any of these arrangements, taxpayers must file all of their tax returns up to date, and they must keep their payments current while they pay off their prior tax debt. The arrangements for installment payment agreements vary depending on how much the taxpayer owes. This outline relates to debts for individual income tax. Different criteria are applied to business and payroll tax liabilities.

I Owe Less Than $10,000

If you owe IRS less than $10,000, IRS is required to allow you to pay your debt in installments, if you have paid your tax on time for the prior five years. You must propose monthly installments will pay off the debt within three years. IRS says that it grants these installment agreements even if you would be able to pay the debt in full. Apply for an installment agreement on Form 9465–Installment Agreement Request, or go to IRS.gov and enter “Online Payment Agreement” in the search box. No tax liens are filed for these small debts

I Owe Less than $25,000

If you owe IRS less than $25,000, Internal Revenue Service is anxious to get you started to pay off your balance. You can file Form 9465–Installment Agreement Request or go to IRS.Gov to apply for an installment agreement. IRS will generally accept your financial information without verification, and will accept a payment period of up to 72 months (but not longer than the “10 years from assessment date” Statute of Limitations). You will not be required to arrange for direct debit to your bank account. If you have previously had an installment agreement which you didn’t fulfill, you will be required to verify your financial information. No tax lien is filed for debts of $25,000 or less.

I Owe Less Than $50,000

If you owe less than $50,000, you may apply for an installment agreement using either Form 9465 or online at IRS.gov. Arrangements for a direct debit to your bank account or a payroll deduction are required for debts in excess of $25,000. Under a Streamlined Processing test program scheduled to run until September of 2017, IRS is not requiring a formal Collection Information Statement for debts of $50,000 or less. Direct debit or payroll deduction is encouraged, but is not required under the Streamlined Processing test program. If direct debit or payroll deduction is not agreed to by the taxpayer, filing of a tax lien will be considered.

I Owe Less Than $100,000

If you owe more than $50,000, you don’t qualify for the usual procedures for Streamlined Processing of your installment agreement request. If you owe less than $100,000, though, you qualify under the test program scheduled to run until September, 2017. Under the test program, you may request an installment period of up to 84 months, but not beyond the Statute of Limitations. If you agree to direct debit or payroll deduction of your installment payments, you will not be required to verify your income and expenses on a formal Collection Information Statement. Filing of a tax lien will be likely.

I Owe More Than $100,000

If you owe more than $100,000, you don’t qualify for a “Streamlined Processing” option for an installment agreement. IRS does recognize the difficulty that you may have paying your tax, however, and will work with you, if necessary. Plan on filing Form 433A–Collection Information Statement. A budget is an important part of that statement. You will find it worthwhile to look up the National Standards for expenses allowed on that statement. Search National Standards on IRS.gov. There are National Standards published for Food, Clothing & Miscellaneous, Housing, Vehicle Ownership, Vehicle Operation, and Out of Pocket Medical Expenses. IRS will generally allow their calculated National Standards, regardless of your actual expenses. IRS may resist allowing more than the National Standards.

If you owe taxes, it is almost always to your benefit to be in contact with IRS. If the Service is not already in touch with you, get in touch with them. Plan to file all future tax returns on time, with full payment.