Finding out you owe the government money on taxes can be daunting. This debt can grow quickly, and the IRS has the power to seize your assets. Before your tax problems get to this point, you have options to reach an agreement with the IRS on how to pay the debt.
14 Frequently Asked Questions about the IRS Payment Plan Program
- How Do I Set Up a Payment Plan With the IRS?
- What Type of Payment Plans Are There?
- Who Qualifies for a Payment Plan?
- How Do I Make Payments on My Payment Plan?
- Will the IRS Take My Federal and State Tax Refund?
- What If I Miss an IRS Payment Plan Monthly Payment or IRS Installment Agreement Payment?
- Why Would the IRS Terminate My Existing Payment Plan?
- Can I Request a Payment Plan Agreement for Business Taxes?
- Can IRS Debt Be Forgiven?
- How Can I Reduce My IRS Debt?
- Can I Have Multiple Payment Plans With the IRS?
- What Are My Payment Options If I Owe the IRS?
- Can I Change My IRS Payment Plan?
- How Do I Check My IRS Payment Plan Balance?
The Internal Revenue Service or IRS is responsible for collecting various taxes when they are due. If you end up owing the IRS a tax liability, it can come with hefty fines and penalties, such as daily interest compounding. IRS tax debt can grow quickly, so it’s important to take appropriate steps to pay it down as soon as possible.
You may find you owe taxes when you file your tax return at the beginning of the year, or the IRS may send a bill. Freelancers, investors, and those who rent property may also be responsible for making quarterly estimated income tax payments to the IRS. Businesses have employment and excise taxes to consider, with possible monthly or semi-weekly due dates.
For those who do not file in time, the IRS may file a substitute return on their behalf. A substitute return may not include all of the deductions or credits a taxpayer can claim. Depending on your tax situation, you may want to consider consulting with an experienced tax lawyer. Failure to pay can lead to the IRS taking action–including a possible Notice of Federal Tax Lien on your personal or business property. Continued failure to pay an outstanding balance can lead to a tax levy or seizure of your assets to satisfy the debt. The IRS has the power to seize property ranging from investments and bank accounts to wages and secondary homes or vehicles.
If you cannot pay your entire tax debt after verifying the actual amount due, there are options available to you. A tax professional can use their knowledge and experience dealing with the IRS to negotiate an agreement. You can also try to file a payment agreement with the IRS yourself. Read on for more information about IRS payment plans.
1. How Do I Set Up a Payment Plan With the IRS?
The best way to settle a tax debt is to ensure the amount due is correct and then pay the lump sum as soon as possible. There are failure-to-file penalties, failure-to-pay penalties, and underpayment penalties. Daily compounding rates accrue on the balance due, which is recalculated quarterly.
There are many ways to set up a payment plan with the IRS. Depending on your specific tax situation, you may be able to set up an IRS tax payment plan online, over the phone, by mail, or even in person. To apply by mail, you must complete and submit IRS Form 9465 (Installment Agreement Request). Each payment option has different fees and timeframes to consider, as well as debt-amount thresholds. To get started, you will be asked to provide your name, email address, mailing address, date of birth, social security number or tax identification number.
2. What Type of Payment Plans Are There?
There are several payment plan options for taxpayers who owe the IRS money, including short-term and long-term payment plans. Short-term installment agreements are 120 days or less. Long-term plans can be extended up to 72 months (six years). Each option requires different types of fees. Longer agreements have higher setup costs, but some low-income taxpayers may be able to reduce their setup costs. Long-term payment plans with automatic withdrawals from a bank are called Direct Debit Installment Agreements (DDIA).
3. Who Qualifies for a Payment Plan?
The payment plan you qualify for depends on how much you owe. Those who owe $100,000 or less may be able to apply for short-term payment plans of 120 days or less. Those who owe $50,000 or less may be able to set up a long-term payment plan over 120 days. In order to qualify for a payment plan, you must have filed all required tax returns, as well as any required or missing payments. You may also need to consider how to make estimated payments on top of the installment agreement payments.
4. How Do I Make Payments on My Payment Plan?
Some payment plans require certain payment methods. For example, the Direct Debit Installment Agreement (DDIA) will automatically withdraw payments from your bank account (typically your checking account). In some cases, you can also pay with cash using the IRS PayNearMe option. However, this is limited to payments up to $1,000 a day and does not include the fee for each payment. If you prefer to make an online payment, you may be interested in using the Electronic Federal Tax Payment System (EFTPS). Other methods include paying with a check, money order, debit card, or credit card. Each payment method may incur unique costs or fees.
5. Will the IRS Take My Federal and State Tax Refund?
Depending on your situation and taxes owed, the IRS may consider seizing your state or federal tax refund. If you set up a payment agreement, any refund would be automatically applied towards the liability. Your refund will be applied to the amount owed and will reduce your debt. If you are married and filed jointly, and your spouse incurs a tax debt, the IRS will consider you equally and fully liable for the debt. You may be able to qualify for tax debt relief through the IRS Innocent Spouse options. Consider reaching out to a tax expert for more information.
6. What If I Miss an IRS Payment Plan Monthly Payment or IRS Installment Agreement Payment?
If you miss an installment agreement payment the IRS can choose to terminate your payment plan. Before it gets to this point you can try calling the IRS for temporary permission to miss a payment. You can also try renegotiating the monthly payment amount, especially if your financial situation has changed and you cannot afford to pay the previous amounts.
7. Why Would the IRS Terminate My Existing Payment Plan?
The IRS may terminate an existing payment plan if you miss a monthly payment or if you revise your plan. For example, if you owe unpaid tax from a previous year and incur additional debt from a second year, you cannot just add it to the existing plan. Instead, the IRS may terminate the original plan when a new amount is owed, which allows you to apply for a new payment plan that reflects the new amount.
8. Can I Request a Payment Plan Agreement for Business Taxes?
You may be able to request a payment plan for business taxes that can’t be paid in full right away. How you apply depends on the business type or structure. Pass-through businesses who incur business tax debt, such as sole proprietors and single member limited liability companies (SMLLCs), can use personal payment plan agreements. Businesses that owe less than $50,000 may be able to use streamlined payment plans. IRS action that progresses to a federal tax lien or levy can result in business assets being seized. Depending on how the business was managed, personal assets may also be considered to satisfy a business debt.
9. Can IRS Debt Be Forgiven?
The IRS does not forgive tax debt, but there may be ways to reduce the amount owed. In some cases, you may also qualify for tax relief from active collection actions by the IRS. You can ask for a tax debt to be considered “Currently Non Collectible” by demonstrating that you cannot pay, or that doing so would result in economic hardship. You may also consider applying for an Offer in Compromise, where you might be able to negotiate a lower amount owed. A final option would be considering bankruptcy, although some tax debt will survive a bankruptcy. It is important to remember that the statute of limitations on IRS tax debt is usually 10 years.
10. How Can I Reduce My IRS Debt?
You may be able to reduce your IRS debt with an Offer in Compromise (OIC). The IRS will consider your ability to pay by evaluating your income, living expenses, and assets. Remember that some actions you take with the IRS may reset or pause the statute of limitation on a tax liability. Attempting to negotiate with the IRS to lower a tax debt can end up negatively impacting you unless it is handled correctly. This is why it’s important to consult with a tax professional about the proper ways to reduce a tax bill.
11. Can I Have Multiple Payment Plans With the IRS?
No, you won’t be able to set up multiple payment plans, but the IRS will cancel or terminate an existing payment plan if a new amount becomes owed. You can then apply for a new payment arrangement that reflects the new amount. This allows you to combine balances from multiple tax years into one agreement plan.
12. What Are My Payment Options If I Owe the IRS?
Your payment options depend on your ability to pay the IRS what you owe. If you can pay the debt right away, you can save yourself from interest and penalties. However, if you cannot pay the entire amount, you can consider short to long-term payment arrangements, or even an Offer in Compromise (OIC). When paying an IRS bill would cause undue economic hardship, you may be able to stall the IRS for some time.
13. Can I Change My IRS Payment Plan?
Yes, some changes to your IRS payment plan are allowed, and you can make these changes online. You may be able to alter monthly payment amounts and due dates, as well as convert to alternative payment methods. For example, if you are paying with cash, checks, or money orders, you can transition to a direct debit agreement. However, if the payment plan is already on a direct debit plan and you want to change it, you will have to contact the IRS for assistance.
14. How Do I Check My IRS Payment Plan Balance?
You check your IRS payment plan balance by calling the IRS or by visiting their website. Once you create an account, you will be able to view your payoff amount, balance, payment history, and other payment plan information.
How a Tax Professional Can Help
There are many ways a tax attorney or other experienced tax professional can help you with your taxes. In addition to ensuring you are getting the correct deductions and credits, a tax attorney will help you negotiate amounts owed to help settle your tax debt. One way is to arrange payments with the IRS through monthly installments. Those who owe business taxes or personal IRS debt can apply for an IRS payment plan. The experienced tax professionals at Acadia Law Group will be able to help you navigate the complex tax laws and revenue codes, and successfully negotiate the best payment plan for your situation.