If an individual or a business is unable to pay their tax liabilities in full, it is better to request an IRS tax installment agreement rather than being at the wrong side of the law. An IRS installment agreement, also called “IRS Installment payment plan”, allows taxpayers to pay their tax debt in parts, over an extended period of time. Continuing on the subject, this blog post covers all you need to know about IRS tax installments agreements, including the application process.
What is an IRS Tax Installment Agreement?
The IRS offers a payment plan that allows taxpayers to pay their taxes in partial payments over a specific period of time. A taxpayer can apply for an IRS tax installment agreement if they meet the following criteria:
- Taxes were filed and paid on time in records dating back to 5 years.
- All tax returns are filed.
- No record of requesting for a tax installment agreement exists in past 5 years
- Agreement to file and pay taxes in time for the given time slot.
If you meet the above criteria, the IRS may allow you to pay your taxes in installments, provided the total amount owed is not more than $10,000. The maximum amount of time the IRS gives a taxpayer to clear the balance is 36 months. If you are unable to pay your taxes in full you can request an IRS tax installment agreement by filling Form-433-F to avoid the possibility of facing a federal tax lien in future.
Types of Installment Agreements
The IRS offer taxpayers different types of installment agreements with each agreement type having a specific criteria. Below we cover each type of installment agreements and their criteria, in brief.
A taxpayer who owes the IRS $10,000 or less is eligible to file for a Guaranteed Installment Agreement. Only individuals can apply for this payment plan and must pay their balance, including penalties and interests, within 3 years.
Individuals who owe the IRS $100,000 or active businesses that owe a total of $25,000 or less in taxes are eligible to file for a Streamlined Installment Agreement, SIA. Taxpayers, whether individuals or sole proprietors, are given up to 84 months to pay the balance, whereas businesses are usually given up to 36 months.
Individuals who are not eligible to file for a SIA can opt for Financially Verified Installment Agreements. To qualify for this payment plan, a taxpayer needs to submit financial disclosure, including records proving income, debts, expenses, and assets. It is advisable to hire a tax professional for thoroughly documenting your financial disclosure, without leaving any loose ends.
Taxpayers who file for an Offer in Compromise, but do not get approval, can request a Partial Payment Install Agreement, PPIA. PPIA is a special payment plan in which the IRS allows taxpayers to pay smaller monthly installments than the normal agreement in case of other types of installment agreements. It is important to note that, in this payment plan, the IRS will review you financial status after every 2 years.
Direct Debit IRS Installment Agreements or DDIA in an agreement with the IRS in which the monthly payments are directly deducted from a taxpayer’s bank account. Taxpayers who owe the IRS $50,000 or less are eligible to apply for a DDIA. A taxpayer may also qualify for such a payment plan if they are seeking withdrawal of a tax lien.
In lieu of your total taxes owed and financial situation, there are four ways to apply for an IRS tax installment agreement.
- Fill the Form 9465 (Request for Installment Agreement) and directly mail it to the IRS.
- Call the IRS toll-free helpline, 1-800-829-1040, and request for an installment agreement
- If you are an individual who owes taxes of $50,000 or less to the IRS or a business that owes $25,000 or less, fill the online tax installment agreement application.
- Hire a tax professional to negotiate with the IRS on your behalf.
If you are unable to pay your taxes, file for an installment agreement to avoid a potential tax lien. While at it, it is advisable to seek the help of an IRS tax professional. We, at The Law Offices of Nick Nemeth, have been providing IRS debt resolution services for more than 18 years. Our team is experienced and committed to helping you overcome any IRS tax-related issue. Get in touch with us by dialling (972) 627-4580. You can also drop a mail at andrea@myIRSteam.com or fill our contact form and we will take it from there.