Payment plans with the IRS are officially called ‘installment agreements’ and they’re a good option for taxpayers who can’t pay their taxes in full. Instead of paying your tax liability with a one-time payment, payment plans allow you to divide the payment into smaller amounts over a period of time until the tax debt is paid. It may not seem like an ideal option, but in some cases a payment plan is the only viable option. The IRS may be unforgiving when it comes to calculating the taxes you owe, but it is also practical when it comes to collecting taxes.
The basic idea behind IRS installment agreements is simple. The taxpayer will pay the tax liability due, but the payment is spread out over a longer time frame. Under a payment plan, a tax debt that is due today can be paid off over a longer period, for example, six months. Business owners may find payment plans to be a viable option for payroll tax debt, and taxpayers who do not qualify for an offer in compromise may nevertheless qualify for an installment agreement.
Unlike an offer in compromise, a payment plan does not reduce the liability of the taxpayer. It only gives the taxpayer more leeway when it comes to the schedule of payments. As far as the tax liability is concerned, there is no deduction. If the tax debt has been due for quite some time, the IRS might also assess additional penalties and interest.
Advantages of a Payment Plan
Speaking of penalties, let’s discuss the advantages of an IRS payment plan. For one thing, it helps the taxpayer avoid further penalties being added to their tax liability. However, interest will not be suspended until the debt is paid in full, so you’ll still be paying added interest on top of your tax debt even as you’re making installment payments on the debt.
If you have a payment plan in place, this will also help prevent the IRS from offsetting any future refunds you might receive in the future. This means that you might start receiving refunds again from the IRS instead of your refunds being used to pay off your tax debt. Finally, using the payment plan option will help your credit score bounce back, meaning that banks will be more likely to grant you loans.
How Do I Apply?
If you think a payment plan is a good option for you, you can apply through any of the following ways:
- Online application using the IRS’ Online Payment Agreement Tool
- Phone application by phoning the IRS
- Mail application by filling out Form 9465 and then sending it through mail
Applying for an installment agreement is actually quite straightforward and inexpensive. The application itself will take no more than thirty minutes, and installment agreement fees are lower than offers in compromise. What may take longer than the application itself is the process of setting up the payment method – such as through direct debit.
How To Get Legal Advice For Tax Resolution
If you’re not sure whether or not it’s a good idea to apply for an IRS payment plan, you should consult with a lawyer who specializes in tax cases. The IRS itself recognizes that taxpayers may be situated differently, and a tax lawyer is in the best position to assess your situation and make a recommendation. A tax lawyer will also be able to check if you qualify for a payment plan – take note that individual taxpayers and business taxpayers have different qualifications when it comes to applying for a payment plan.