IRS Installment Agreement
The Internal Revenue Service (IRS) has a program in which they will allow Los Angeles taxpayers to pay off their taxes through a long-term payment plan, also known as an installment agreement. In this installment agreement, the IRS helps you by establishing a time period to pay off your tax issue. Our tax lawyers can answer your questions regarding the California and other state tax installment agreements. We are experts on issues related to the State of California Franchise Tax Board. While it is always best to pay off your taxes on time, if you find yourself unable, an installment agreement is a great option. Currently, the IRS offers three different types of installment agreements: streamlined, partial payment, and non-streamlined.
Streamlined Installment Agreement
The majority of taxpayers who qualify for a guaranteed installment agreement also qualify for a streamlined installment agreement. However, a streamlined installment has a few additional requirements, including:
- Your tax liability, interest, and penalties do not exceed $50,000;
- You can pay off the balance within 72 months (6 years)
- Your proposed payment must be more than or equal to the “minimum acceptable payment” which can be calculated by dividing the tax liability, interest, and penalties by 50.
Similar to a guaranteed installment agreement, the IRS won’t file a federal tax lien as long as the taxpayer covers a fee in order to set up the installment agreement.
Partial Payment Installment Agreement
A partial payment installment agreement allows the IRS to make arrangements with taxpayers to begin partial payment of their tax liability. In order to qualify for a partial payment installment agreement, taxpayers must fill out a financial statement in accordance with Form 433-F to report their income and living expenses. The IRS will then review and verify all information. If the taxpayer has assets that may be sold in order to pay off any tax issues, additional information will need to be provided to the IRS. Following approval of a partial payment installment agreement, the taxpayer must cooperate in a financial review every two years until the payment is complete. Following these financial reviews, the taxpayer’s payments may potentially increase, or even worse, the agreement could be terminated.
Non-Streamlined Installment Agreement
When a taxpayer owes more than $50,000, but can make monthly payments to the IRS, a non-streamlined agreement is another option. Rather than automatically approving this type of installment agreement, a non-streamlined agreement is negotiated between the taxpayer and IRS. After filing Form 433-F, Collection Information Statement — the taxpayer will propose an installment payment amount for the IRS’s consideration. A few months later the IRS will either accept or refuse the installment agreement proposal.
What Is A Payment Plan?
Installment agreements and payment plans are not required to be paid in full. A payment plan offers an agreement made with the IRS to pay the taxes you owe within a specific timeframe. It helps during periods of financial hardship. You can request a payment plan if you feel as though it will be beneficial to you and that you will make your payments within the extended timeframe of your balance due.
Methods of installment payments include:
- Check or money order
- Credit card
- Debit card
- Electronic Federal Tax Payment
- System (EFTPS)
- Online Payment Agreement (OPA)
- Payroll deduction
Am I Eligible For A California Tax Payment Plan?
You are likely eligible for a payment plan if:
1) The total amounts to less than $25,000;
2) You can pay off the installment payment plan in less than 60 months;
3) You have filed all of your income tax returns.
Are There Any Fees Associated With A Payment Plan?
Yes, there are certain fees attached to IRS payment plans. If you’re approved by the IRS for one of their payment plan options or installment agreements, a fee will be added to your tax bill. You can apply online through the IRS website in order to see if you are approved for their installment plans and to see how much the fee will be for your unique situation.
Can The IRS Revoke An Installment Agreement?
Yes, the IRS can revoke an installment agreement. Some of the circumstances which will allow the IRS the right to revoke your installment agreement include:
- The taxpayer misses a payment;
- Inaccurate information was provided by the taxpayer on Form 433-F;
- The taxpayer does not file a tax return or pay taxes after an agreement has been entered upon; or
- The taxpayer is paying under a partial payment plan and a review indicates that there has been a change in their financial position.
Why Should I Pay My Taxes On Time?
Individuals are obligated to follow tax deadlines as mandated by law, with the IRS empowered to levy penalties on non-compliance. Annually, you are required to file a tax return and make punctual tax payments. Failing to meet the initial filing deadline may lead to accruing interest charges and monthly late fees on any outstanding tax owed. We urge all taxpayers, both state and income, to review the supplementary information offered below.
Here are some significant benefits associated with paying your taxes promptly:
- By paying on time, you can steer clear of late filing fees, interest charges, or penalties.
- Timely payment helps prevent the withholding of your future funds or offsets.
- It allows you to bypass potential hurdles when seeking a loan.
If meeting your tax payment deadline becomes challenging, it’s wise to take proactive measures by arranging a payment agreement with the IRS. This proactive step will assist you in fully addressing your tax liability and minimizing the risk of future complications.
Why Should I Pay My Taxes On Time?
If the taxpayer defaults on the Installment Agreement, the IRS might nullify the arrangement. This often leads to:
- Intensified Collection Efforts: The IRS may escalate its pursuit to collect the outstanding amount.
- Lien or Levy: The risk of experiencing a tax lien or tax levy on personal property or wages rises significantly.
- Compromised Financial Stability: Penalties and interest can substantially inflate the debt, jeopardizing financial stability.
What Preventative Steps Are There to Elude a Missing Payment?
Preventive steps to elude missing a payment can include:
- Automatic Payments: Enrolling in Direct Pay or the Electronic Federal Tax Payment System (EFTPS) to automate payments.
- Budgeting: Prioritizing the IRS payment to ensure consistency and timely submission.
- Rectifying a Missed Payment
If a payment is missed, immediate remedial steps should be undertaken:
- Quick Repayment: Make the missed payment as promptly as possible to mitigate penalties and interest.
- Communicate with the IRS: Reach out to the IRS to discuss potential implications and negotiate solutions.
- Amend the Agreement: Consider revising the payment plan to a more manageable figure if permissible by the IRS.
How Does an IRS Installment Agreement Affect My Credit Score?
Your credit score, a three-digit figure, acts as a reflection of your creditworthiness, influencing your ability to secure loans and determining interest rates you might be offered. Lenders and financial institutions leverage this score, formulated through an analysis of your credit reports, to assess the potential risk associated with extending your credit.
- Payment history: Examining punctuality and consistency in prior payment behaviors.
- Credit usage: The ratio of your current credit card balances to their credit limits.
- Length of credit history: The duration of your credit accounts and their activity.
- Types of credit in use: Various forms of credit, such as mortgages, credit cards, and installment loans.
- New credit: The number of recently opened credit accounts and the number of recent inquiries into your credit report.
Here are some of the effects an Installment Agreement can have on your credit report and score:
- Tax Liens: In previous years, tax liens could be filed and would appear on credit reports, considerably denting credit scores. However, since 2018, tax liens are no longer part of consumer credit reports and, thus, do not directly impact credit scores.
- Loan Approval: Engaging in an Installment Agreement might indirectly influence your loan approval chances. When you apply for a substantial loan, lenders may, as part of their due diligence, scrutinize your income to debt ratio, discovering the ongoing IRS payment plan.
- Financial Health Perception: While the Installment Agreement per se doesn’t lower your credit score, prospective lenders discerning an ongoing payment plan might perceive it as a red flag, potentially signifying precarious financial health.
How Does an IRS Installment Agreement Affect My Credit Score?
The IRS, recognizing the escalating prevalence and the necessity of online transactions, offers several avenues through which taxpayers can manage their Installment Agreements digitally.
IRS Direct Pay
This tool allows taxpayers to pay directly from their checking or savings accounts without any fees. Through IRS Direct Pay, you can:
- Schedule payments up to 30 days in advance.
- Receive instant confirmation after the transaction.
- View your payment history.
IRS2Go App
The IRS2Go App is another noteworthy tool in your arsenal, allowing for effortless management of tax payments through your mobile device and providing features such as:
- Making a payment directly from your bank account or by debit/credit card.
- Checking your refund status.
- Finding free tax preparation assistance.
Utilizing your debit or credit card is also a viable option, albeit it usually involves processing fees. Various payment processors facilitate these transactions:
- PayUSAtax
- Pay1040
- OfficialPayments
The taxpayer can choose a processor based on the convenience, fees, or any promotional offerings.
How to Ensure Security in Online Transactions?
In an era where cybersecurity threats loom large, ensuring the security of your online transactions is paramount.
- Multi-Factor Authentication: Ensure that you activate and utilize multi-factor authentication whenever available.
- Secure Connection: Always check that your connection is secure, represented by a little padlock symbol in the address bar, and that the URL begins with ’https://’.
- Periodic Checks: Ensure that you consistently monitor your bank accounts for any unauthorized or suspicious activity.
- Secure Personal Information: Be mindful of phishing attempts and ensure your personal and financial information is shared only on verified platforms.
Can I Pay Off My Installment Agreement Early?
At first look, early repayment of an IRS debt via the Installment Agreement may seem exclusively advantageous; however, its impact extends across numerous aspects of financial management, thus necessitating a comprehensive examination.
Pros of Early Repayment
- Interest Minimization: By curtailing the lifespan of the debt, you inherently minimize the accumulation of interest.
- Psychological Ease: The psychological relief of liberating oneself from debt cannot be understated.
- Creditworthiness: Though an Installment Agreement per se doesn’t directly influence your credit score, being debt-free can indirectly enhance your financial profile.
- Loan Approval Odds: Future lenders may perceive your early repayment positively, impacting your loan approval chances favorably.
- Investment Avenues: The funds utilized for early repayment might otherwise be invested, potentially yielding returns that outweigh the saved interest.
- Emergency Buffer: Especially pertinent in an unpredictable economic climate, having an accessible financial buffer can be paramount.
Liquidity Challenges: For some, rushing the repayment might unduly strain other financial obligations or inhibit the capacity to manage unforeseen expenses.
How Can I Qualify For An IRS Installment Agreement?
In order for you to qualify for an IRS installment agreement, you must meet the following criteria:
- You must have, within the last 5 years, filed all tax returns, paid any taxes owed, and have not entered into a previous installment agreement;
- Owe less than $50,000;
- Be unable to pay the tax liability by the due date or within 120 days;
- Tax liability must be paid within 3 years;
- Must pay at least the minimum monthly payment.
If you meet all of these criteria, you will qualify for one of the IRS’s various installment agreements. It’s always best to pay any taxes you owe upfront. However, if you do find yourself in a situation in which you are unable to do so, contact the IRS as soon as possible to set up an installment agreement in California.
The CSED is the date after which the IRS can no longer collect the tax from you. Generally, this is 10 years from the date the tax is assessed. There are certain events that can toll the statute. Find out more by calling us now at 866.640.0640.
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IRS Installment Agreement: Frequently Asked Questions
How does an IRS Installment Agreement work?
Who qualifies for an Installment Agreement?
Taxpayers who cannot pay their tax liability in full and on time may qualify, but they must generally file all required tax returns and provide necessary documentation. There are different types of installment agreements that cater to different situations and amounts owed.
How do I apply for an Installment Agreement?
You can apply online using the IRS Online Payment Agreement tool if you owe $50,000 or less in combined tax, penalties, and interest. For amounts greater than that, or for businesses, you might need to apply with a Form 9465 (Installment Agreement Request) or through a tax professional.
What are the different types of Installment Agreements?
- Guaranteed Installment Agreements: For individuals owing less than $10,000.
- Streamlined Installment Agreements: For individuals owing less than $50,000 and businesses that owe $25,000 or less.
- Partial Payment Installment Agreements: If you can’t meet the payment requirements of the above agreements.
- Non-Streamlined Installment Agreements: For those who don’t qualify for the above.
How much will my monthly payment be?
The amount is typically based on your balance and ability to pay. Minimum payment can often be the amount of your balance divided by the number of months in the collection statute (typically 72 months), but other factors may influence this.
What if I don’t pay my installments?
Is there a fee to set up an Installment Agreement?
Yes, there are fees to set up an agreement, though low-income taxpayers may receive a reduced fee or waiver. The exact fee can depend on the type of agreement and your method of payment.
Can I use electronic payment methods?
What happens to future refunds while in an agreement?
Can I apply for an Installment Agreement if I am self-employed?
How is the interest rate defined for an Installment Agreement?
The interest rate applicable to Installment Agreements and underpayments with the IRS is set on a quarterly basis, constituting the federal short-term rate plus an additional 3%. As the rate can fluctuate, it is advisable to verify the prevailing rate by visiting the IRS website or reaching out to the IRS directly for the most recent information.
How long does it take for the IRS to approve an Installment Agreement?
Approval time can vary. Simple agreements, like streamlined agreements, might get quicker approval, while others might take a few weeks or more, especially if additional documentation is required.
Is it possible to contribute more than the established monthly payment amount if I have the capacity?
Certainly, it's usually permissible to pay above your designated monthly payment without incurring penalties. By doing this, you'll decrease your overall balance and consequently, the total interest owed.
What should I do if my financial situation changes and I can no longer afford the agreed-upon payments?
Can an Installment Agreement be terminated by the IRS?
Yes, the IRS can terminate an Installment Agreement if you miss a payment, do not file future tax returns, or provide inaccurate information during setup. The IRS will typically provide notice before termination.
What are the consequences of defaulting on an Installment Agreement?
Does an Installment Agreement cover future tax debts?
Is my tax debt eligible for an Installment Agreement if it is under dispute?
Do I need to provide financial information to set up an Installment Agreement?
For certain types of Installment Agreements, such as a Streamlined Installment Agreement, detailed financial statements may not be necessary. However, for larger tax debts or Non-Streamlined Installment Agreements, detailed financial information may be required.