Tax planning can be tricky, and filing your federal income taxes is sometimes a confusing process that can lead to errors or oversights. As a result, many Americans find themselves owing additional money to the IRS, and they may not have the financial resources to immediately settle that debt.
IRS installment agreements are a way to resolve these types of situations without any serious legal consequences for the person owing money to the IRS. If you’re worried about your tax debts and not sure you have the resources to resolve them in the short term, an installment agreement might be your best path forward. Read this PDS blog to understand installment agreements today.
What is an IRS Installment Agreement?
An IRS installment agreement is a contract between the IRS and an individual or business owing taxes to the IRS. The agreement extends the due date for collection of those taxes, creating a structured monthly payment plan that can extend for a period of years.
How Many Months Will the IRS Let You Make Payments?
There are multiple types of installment agreements, each of which has slightly different terms and conditions. Depending on which one you qualify for, you’ll be granted a variable time period in which to pay back the tax debt.
Guaranteed Installment Agreement
A guaranteed agreement is for people who owe $10,000 or less. In a guaranteed agreement, it’s necessary to pay the money back within 36 months (three years).
Streamlined Installment Agreement
A streamlined installment agreement is for individuals (non-businesses) who owe $50,000 or less. With this type of agreement, the maximum term is 72 months (six years).
Full-Pay Non-Streamlined Installment Agreement
A full-pay non-streamlined installment agreement (often referred to as a full-pay NSIA) is for people who owe $250,000 or less. A full-pay NSIA can extend out for up to 120 months (10 years).
What is the Lowest Payment the IRS Will Take?
Just as different types of installment agreements have different maximum terms, there are also varying minimum payment requirements. In some cases, a minimum IRS installment agreement payment exists, while in others it does not.
For both guaranteed installment plans (for $10,000 or less) and full-pay NSIAs (for $250,000 or less), no minimum payment exists. For these plans, you’ll need to consult with the IRS on the specifics.
For streamlined installment agreements, the minimum payment is set at the full amount owed divided by the 36-month term. So, for example, if you owe $25,000, you would need to make 36 monthly payments of $694.44 at a minimum.
In all varieties of installment agreements, minimum payments are only the lower threshold allowed, not a requirement. If your financial circumstances change, you are allowed to pay more than the minimum in any given month.
Limitations to IRS Installment Agreements
It’s important to understand that penalties and additional fees will continue to be levied on unpaid taxes, even if you’ve created an installment agreement. This means it’s always preferable to pay the full sum of owed taxes as soon as possible if you have the means.
Additionally, you will need to seek approval before entering into an installment agreement. The IRS provides an IRS installment agreement form, which is available in multiple forms. You can apply online, by mail or by phone. While it’s entirely possible for you to fill out and submit the form by yourself, you can consult with a tax preparation professional when doing so.
IRS installment agreements represent the best way to stay out of legal trouble if you find yourself unable to pay off a federal tax debt. A variety of types of plans exist, each with its own terms and conditions, and choosing the right one for you can put you on the path to resolving your tax debt situation.
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