If you owe taxes to the IRS but can’t pay the full amount upfront, don’t fret. The IRS offers several installment agreements. An Installment Agreement is by far the most common type of IRS tax resolution used by taxpayers. Let’s walk through the several types of IRS installment agreements, so you can find the best option for your situation.
1. Short-Term Payment Plan (180 Days or Less)
A short-term payment plan is ideal for taxes you can pay in six months.
- Eligibility: You qualify if you owe less than $100,000 in combined tax, penalties, and interest. You have filed all your required tax returns.
- Interest and Penalties: continue to accrue until the balance is paid.
- Setup Fee: There’s no setup fee for this plan.
- Payment Methods: Assorted options: Direct Pay (directly from your bank account), check, money order, or credit/debit card.
- Best For: Taxpayers who need a few months to pull together the funds but don’t want to commit to a longer-term agreement.
2. Long-Term Payment Plan (More Than 180 Days)
The long-term payment plan allows you to make monthly payments over a longer period.
- Eligibility: You qualify if you owe $50,000 or less in tax, penalties, and interest. You have filed all your required tax returns.
- Setup Fees: Vary depending on method of application, payment, and taxpayer income level.
- Payment Methods: Diverse options: Direct Pay (directly from your bank account), check, money order, or credit/debit card.
- Best For: Taxpayers who need more time to pay off their debt and prefer smaller, more manageable monthly payments.
3. Guaranteed Installment Agreement
A guaranteed installment agreement offers a simpler, more automatic approval process for those with smaller debts.
- Eligibility: You qualify if:
- You owe $10,000 or less in taxes (excluding penalties and interest).
- You have filed all your required tax returns.
- You haven’t entered into an installment agreement in the past five years.
- You can pay the full amount within three years.
- Automatic Approval: If you meet the criteria, BOOM! The IRS will automatically approve your plan.
- Setup Fees: Vary depending on method of application, payment, and taxpayer income level.
- Best For: Taxpayers with smaller tax balances who want a straightforward installment plan with minimal hassle.
4. Streamlined Installment Agreement
The streamlined installment agreement is a faster and simpler version of the long-term plan, requiring less paperwork to set up.
- Eligibility: You qualify if you owe $50,000 or less in combined tax, penalties, and interest, and you can pay the balance within 72 months (six years). You have filed all your required tax returns.
- Setup Fees: Same as the long-term plan.
- Best For: Taxpayers who need more than six months to pay off their debt but want a simpler approval process without providing a lot of financial information.
5. Partial Payment Installment Agreement (PPIA)
A partial payment installment agreement (PPIA) is designed for taxpayers who cannot afford to pay the full tax debt.
Eligibility: If you can prove financial hardship and cannot pay your entire debt before the IRS’ 10-year collection statute expires, you may qualify. You have filed all your required tax returns.
Setup Fees: Same as long-term plans.
Re-evaluation: The IRS may periodically review your financial situation to determine if you can increase your payments.
Best For: Taxpayers experiencing significant financial hardship who want smaller monthly payments and may settle their debt for less than the full amount owed.
6. Non-Streamlined Installment Agreement
For those who owe more than $50,000 or need more flexible terms, the non-streamlined installment agreement offers a custom solution. Think about folks that have seasonal income and need a payment plan to match their income stream.
Eligibility: You’ll need to negotiate directly with the IRS and provide detailed financial information, such as assets, income, and expenses.
Setup Fees: Same as the long-term plan.
Best For: Taxpayers with more significant debts or complex financial situations who need custom terms for repayment.
Key Considerations for All Installment Agreements
- Filed Tax Returns: All tax returns must be filed BEFORE you request an Installment Agreement. It’s okay if you owe taxes on the returns, they just need to be filed.
- Interest and Penalties: Even with an installment agreement, interest and penalties will continue to accrue until the debt is fully paid.
- Minimum Payment: Usually, the smallest monthly payment the IRS will agree to is $25.
- Refunds: If you’re due a tax refund during the term of the agreement, the IRS will automatically apply it to your outstanding balance.
- Stay Current: To keep your agreement in place, you must file your tax returns on time and pay your taxes in future years. Falling behind could lead to default, and the IRS may start collections such as wage garnishments and/or bank levies.
- Stay in Touch: If you are facing a situation where you can’t make a payment on your Installment Agreement, call the IRS ahead of time to discuss options.
How to Apply
- Online: The IRS Online Payment Agreement tool is the quickest way to set up most installment agreements. You can check your eligibility and get immediate approval for some plans.
- By Phone, Mail, or In-Person: For more complex agreements, you may need to apply by phone, mail, or in person and provide detailed financial information.
Need help deciding? Contact Jeff at Tax Rescue CPA and let’s discuss the best plan for your unique financial situation. You don’t have to face the IRS alone!
Get a Free Tax Review
Here is your personal invitation to claim a Free Tax Review. Don’t wait—let’s make sure you’re taking full advantage of tax-saving opportunities!
“Who’s Doing Your Taxes?” – Tax Rescue CPA
