IRS Payment Plan

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IRS Payment Plan

One of the best ways to pay off an outstanding debt owed to the Internal Revenue Service (IRS) is through a formal payment plan. It is fairly straightforward to set up an IRS payment plan; you can do it yourself, or you can ask your tax preparer to set it up for you. If you currently owe $25,000 or more to the IRS, most tax experts recommend that you enlist the help of a reliable tax debt relief professional.

An IRS payment plan can be set up over the telephone, by sending in paperwork through the mail, or by accessing the Online Payment Agreement on the IRS website. Many taxpayers like the convenience of the online application to set up their IRS payment plan, since it is accessible 24 hours a day from any computer with online capability.

There are a few basic types of IRS payment plans from which to choose: an IRS tax loan, a short-term payment extension, or an installment payment agreement.

IRS Tax Loans

These are loans from financial institutions that are earmarked for repayment of debt to the IRS, and as such usually have lower interest rates than many other types of loans as well as the interest rates charged by the IRS.

Short-Term Payment Extensions

The IRS grants extensions of up to 120 days for taxpayers to repay their debt in full. With this IRS payment plan, interest and late fees continue to accrue until the balance is fully paid.

Installment Agreements

An installment agreement is the most common method used for paying off an IRS debt. In order to qualify for this type of IRS payment plan, you must have filed your tax returns for all past years and for the current year. If your total IRS debt is less than $25,000, you will most likely be automatically qualified for an installment agreement with the IRS. If your debt totals more than $25,000, you will likely negotiate with the IRS in order to set up an installment agreement.

The downside of an installment agreement is that penalties and interest continue to accrue as long as you still have a balance that is owed, even while you make regular payments. When you add up the interest rate and the penalties, the total cost can be in the range of 10% annually, which can add up to a lot of money over the time frame for which you make payments according to the installment agreement.

This type of IRS payment plan requires regular monthly payments; there are four different types of agreements:

  • Guaranteed Installment Agreements, for which you automatically qualify if your total debt is $10,000 or less and you have been in good standing with the IRS for the past five years;
  • Streamlined Installment Agreements, which are for taxpayers who owe the IRS $25,000 or less and can pay off the balance within 60 months;
  • Partial Payment Installment Agreements, which are an option if the payments under a guaranteed or streamlined installment agreement are too high. This option results in a monthly payment that is based on what the taxpayer can afford rather than the total balance that is due; and
  • Non-Streamlined Installment Agreements, which are for taxpayers who owe more than $25,000 or need more than 60 months to repay their debt. This option requires that the taxpayer negotiate the terms of the agreement directly with an IRS agent.

If you are experiencing difficulties with money owed to the IRS for taxes, it is always a good idea to consult a tax professional for advice. A experienced professional can negotiate with the IRS on your behalf to set up the optimal IRS payment plan based on your current financial situation.