Installment agreement overview

Installments Agreements will allow you to pay your tax debt in monthly installments if you cannot pay your taxes in full. By complying to the conditions of your payment agreement, you can avoid IRS collection action, such as wage garnishments and bank account levies. As long as you continue to make payments on time and fulfill all of your current tax responsibilities, the IRS won’t seize any of your assets. Just remember that you will be expected to make interest payments on the amount that you owe in addition to any penalties and fees that may be applicable until the total is paid in full. There are a variety of installment agreement payment options available to assist you in paying down your tax debt. In this article, you will learn about the various payment options that can assist you in paying off your outstanding tax debt.

Eligibility and Types of Installment Agreements

To qualify for an IRS installment agreement, several criteria must be met. Taxpayers must have filed all required tax returns, owe $50,000 or less in tax debt, and demonstrate the ability to pay off the debt within a reasonable timeframe. There are different types of installment agreements available, including Guaranteed Installment Agreements, Streamlined Installment Agreements, Partial Payment Installment Agreements, and Non-Streamlined Installment Agreements.

Common Types of Installment Agreement

• Short-Term installment agreement:
  • If you believe that you can pay your debt off within 6-month. This installment agreement is useful If you feel that you will be able to pay back the amount that you owe within the next 6-months, then you should consider this option. This installment agreement gives you 180 days (6-months) to pay what you owe.
• Long-Term installment agreement:
  • If you believe that it will take you longer than 6-months to pay off your debt, then a Long-Term installment agreement will provide you with a longer term. These payment arrangements provide you with the option to pay off your debt over a longer length of time with the potential of paying over a period of 6-years.

Guaranteed Installment Agreement (GIA)

• You may qualify if you owe $10,000 or less, this amount does not take into account the interest and penalties that the IRS adds to unpaid taxes.
• This installment agreement will allow you 3-years or less to pay off the tax bet.

Streamlined Installment Agreement (SIA)

• You may qualify if you owe $50,000 or less, this amount does take into account the interest and penalties that the IRS adds to unpaid taxes.
• This installment agreement will allow you 6-years or less to pay off the tax debt.

Non-Streamlined Installment Agreement (NSIA)

• You may qualify if you owe over $50,000 or less than $250,000, this amount does take into account the interest and penalties that the IRS adds to unpaid taxes.
• This installment agreement will allow you pay the debt off in 7-years or before the statute of limitations expires.

In-Business Trust Fund Express Installment Agreements

• You may qualify If you own a small business with employees and you owe $25,000 or less, this amount does take into account the interest and penalties that the IRS adds to unpaid taxes.
• This installment agreement will allow you 2-years or less to pay off the tax debt.

Partial Payment Installment Agreement (PPIA)

• You may qualify if you owe more than $10,000 then you may be able to apply for a Partial Payment installment Agreement. This installment agreements allow you to settle your tax debt for an amount that is less than what you actually owe. Typically, this installment agreement will last until the 10-year statute of limitations expires.

Routine Installment Agreement

• When the type of debt doesn’t qualify or meet the criteria for any other installment agreement
• This installment agreement will allow you 2-years or less to pay off the tax debt.

Applying for an Installment Agreement

The application process for an installment agreement can be done through various methods. Taxpayers can apply online, over the phone, or by mail using Form 9465. Once the application is submitted, it typically takes the IRS between 1 and 2 months to approve the payment plan.

Payment Options and Evaluating Eligibility

Installment payments can be made through direct debit, money order or check, debit card or credit card (with processing fees), or the Electronic Federal Tax Payment System (EFTPS). Taxpayers who owe more than $50,000 may need to complete Form 433 to provide financial information for assessment.

Understanding Installment Agreement Terms

IRS installment agreements come with specific terms and conditions that taxpayers must understand before entering into an agreement. These include the 6-Year Rule, the 1-Year Rule, interest charges, minimum monthly payment calculation, IRS evaluation of eligibility, default, and consequences, as well as changes and reinstatement.

Monthly Payment Options and How to Request an Installment Agreement

Depending on the installment agreement, taxpayers can utilize various payment options, including direct debit, money order, check, debit card, credit card, or electronic payments via EFTPS. Requests for installment agreements can be made online, over the phone, or by mail using Form 9465. Taxpayers may also need to submit Form 433 if they owe over $50,000 or have complex financial situations.

Approval Process and Potential Penalties

Upon submission of the installment agreement request, the IRS typically takes between 1 and 2 months to approve the payment plan. However, taxpayers should be aware of potential penalties and interest charges that may continue to accrue during the repayment period.

Having Multiple Installment Agreements and Possible Denials

Taxpayers with existing installment agreements who are unable to pay new tax debts may be able to add the new debt to their current agreement. However, the IRS may refuse installment agreement requests for various reasons, including previous defaults or false information provided.

Defaults and Consequences of Missing Payments

Missing payments or failing to comply with the terms of the installment agreement can result in default. The IRS provides a grace period of 30 days to reinstate the agreement, but failure to respond may lead to termination of the agreement and potential collection actions by the IRS.

Why You Should Consider an Installment Agreement

Installment Agreements will allow you to pay your tax debt in monthly installments if you cannot pay your taxes in full. By complying with the conditions of your payment agreement, you can avoid IRS collection action, such as wage garnishments and bank account levies. As long as you continue to make payments on time and fulfill all of your current tax responsibilities, the IRS won’t seize any of your assets. Just remember that you will be expected to make interest payments on the amount that you owe in addition to any penalties and fees that may be applicable until the total is paid in full. There are a variety of installment agreement payment options available to assist you in paying down your tax debt.

What You Can Expect from an Installment Agreement

• Installment agreements are determined by your ability to pay, not by the amount you owe.
• You can prevent IRS collection actions, such as bank levies, wage garnishment, and seizing your assets.
• You can prevent a Tax Lien; however, a Tax Lien may be required for certain Installment agreements
• The type and term of an installment agreement depend on how you owe the IRS.
• The IRS may charge you a fee to establish a installment agreement depending on the type of agreement and the amount of your income.
• You will continue to accrue interest and penalties on the unpaid portion of the debt until the total is paid in full.
• The IRS will normally keep any tax refunds and apply them to your debt if you’re approved for a installment agreement or not.
• If you request a installment agreement, the initial 10-year statute of limitations ( CSED ) is postponed or suspended while the request is pending. This will provide the IRS with additional time to collect on you.

Why You Want to Choose the Right Installment Agreement

• You want to choose the right installment agreement to avoid painting a financial road map for the IRS to ask more money from you or require you to sell your assets.
• You want to choose the right installment agreement that can help you avoid a Federal Tax Lien.
• You would like the current collection actions to either cease or be reversed.

What is Required by the IRS for an Installment Agreement

Before applying, you must be in compliance with the IRS. This means that all your tax returns and payment obligations need to be up to date at all times. You cannot currently be in a bankruptcy proceeding. You’ve filed all required tax returns and paid all taxes owed in the previous 5-years. You cannot have utilized an installment agreement within the previous 5-years. You must be current with all your filing requirements You agree to file and pay all future taxes on time. You comply with tax laws for the duration of the payment agreement.

What You Should Consider Before Asking for an Installment Agreement

• You should have a monthly payment amount that you realistically can afford and due date in mind.
• You must also determine how you will make payments to the IRS. There are 2 ways to make payments:
  • Short-Term installment agreement: Direct pay from your checking account or by check, money order or debit/credit card
  • Long-Term installment agreement: Direct debit or mailing a physical check for any
• You want to consider the setup fees involved with the installment agreement that you choose.
• Would you be willing to pay interest and penalties on top of the amount that you already owe.
• Are you willing to give up your financial information.
• Short-Term installment agreement will not require you to provide your financial information.
• Long-Term installment agreements may require your financial information if you owe over $50,000.
• You are required to file and pay all future taxes on time after entering into an agreement; otherwise, your payment agreement could go into default.
• The IRS will determine your monthly payment amount based on your allowable monthly expenses, income, and the amount of time remaining on your Statute of Limitations.

Approval is Contingent Upon the Amount You Owe

• If you owe is less than $10,000, this installment agreement is typically an Automatic installment agreement or also known as Guaranteed installment agreement.
• If you owe $100,000 or more, then you may be required to provide financial information. You will be asked to fill out Form IRS 433-F or 433-A to determine your ability to pay and fill out Form 9465 to apply for the installment agreement

IRS Setup Fees for an Installment Agreement

• Short-Term installment agreement:
  • $0 setup fee, setting up this plan doesn’t cost anything.
• Long-Term installment agreement:
  • Direct Debit setup fee:
    • $31 setup fee if you apply online.
    • $107 setup fee if you apply by mail, on the phone, or in person using Form 9465.
  • Direct Debit setup fee for low income:
    • $0 setup fee if you apply by mail, on the phone, online, or in person using Form 9465.
  • Standard setup fee:
    • $130 setup fee if you apply online.
    • $225 setup fee if you apply by mail, on the phone, or in person using Form 9465.
  • Standard setup fee for low income:
    • $0 setup fee if you apply by mail, on the phone, online, or in person using Form 9465.
• Debit or credit card processing fee:
  • Debt Card fee:
    • $2 to $4 fee for using your Debit Card.
  • Credit Card Fee:
    • 2% of the payment when you use your Credit Card.
• Modify an existing installment agreement fee:
  • Modification / Reinstatement Fee:
    • $10 fee if you apply online.
    • $89 fee if you apply by mail, on the phone, or in person.
  • Modification Fee for low income:
    • $10 if you apply online, by mail, on the phone, or in person.

These Factors Determine Which Installment Agreement You Can Get

• The amount you owe:
  • If you owe $10,000 or less:
    • Guaranteed Installment Agreement
  • If you owe $50,000 or less:
    • Streamlined Installment Agreement
  • If you owe over $50,000 or less than $250,000:
    • Non-Streamline Installment Agreement
  • If you owe more than $10,000 plus:
    • Partial payment installments Agreement
• Your monthly income:
  • If your total tax debt is more than $50,000, then you will be expected to disclose specific information about your income. This means that your income will become one of the factors in determining what type of payment plan you will qualify for. The amount of income you make determines how much you are able to pay monthly.
• The age of the tax debt:
  • If you owe money to the IRS, you will be required to pay the debt in full before the Collection Statute Expiration Date (CSED). Typically, the 10 years CSED starts after you file your tax return.

In conclusion, understanding the nuances of IRS installment agreements is crucial for taxpayers facing financial difficulties. By navigating the eligibility criteria, application process, terms, and implications, individuals can make informed decisions to effectively manage their tax obligations and work towards financial stability. If you find yourself in need of such an arrangement, it’s essential to explore your options and engage with the IRS to find the best possible solution for your financial situation.