Do you owe back taxes to the IRS? Are you having trouble coming up with the money to pay your Federal taxes? You aren’t alone. Every year, many people find out that they owe more in taxes than they initially expected. And while that can be distressing, an IRS Installment Agreement may be a possible solution. At Samaritan Tax Relief, we can help you resolve your debts with as minimal impact as possible.
Is It Possible to Settle Your Tax Debt for “Pennies on the Dollar”?
If you are like many taxpayers that are burdened with an insufferable amount of back tax debt, you have undoubtedly heard claims of “settling your tax debt for pennies on the dollar.” As with anything, if it seems too good to be true, it usually is. While there are mechanisms for settling a tax debt, a payment plan is far more realistic. The IRS Installment Agreement is the most likely approach for you to settle your tax debt.
If you’re financially unable to pay your tax debt immediately, you can make monthly payments through an IRS installment agreement. An installment agreement allows you to make a series of monthly payments over time – up to a period of 72 months.
While it is sometimes possible to negotiate with the IRS to settle for less than what you owe, it’s generally only possible if you absolutely cannot pay what you owe, and it’s only advantageous if you owe an amount of money so large that you would never conceivably be able to pay it back. Anyone who claims that you can easily settle your tax debt from the IRS for pennies on the dollar is misleading you.
What is an IRS Installment Agreement?
Under an IRS payment plan, you make an agreement with the IRS to pay off your total balance over a specific period of time. If you can, you can sign up for a fast track payment plan, under which you’ll pay your debt in four months. If you aren’t able to pay this debt within four months, you can instead establish a payment plan based on what you owe.
While under a payment plan, your balance is still subject to interest and a monthly late payment penalty. So while a payment plan can be setup to be repaid over the course of 72 months, it’s best for you to pay it off as soon as possible. You can make additional payments towards the debt through the IRS’ online payment interface.
When you owe the IRS taxes, the IRS can take actions such as wage garnishment and bank levies. Once you sign up for a payment plan, this will no longer happen. If your account has already been frozen or your wages have been garnished, you can get this action reversed by signing up for a payment plan. It’s best to take action before the IRS does.
The IRS is generally very forgiving when it comes to tax debts, but it doesn’t have to be: adverse action against you can be taken at any time. If you’re in debt to the IRS now, it’s time to start resolving the situation. IRS payment plans are generally very reasonable and will make it possible for you to get back to square one with the IRS at a steady pace.
What are the Requirements for an IRS Installment Agreement?
Before applying for an IRS installment agreement, your tax filings and payment requirements need to be current — you need to have filed all of your tax returns. Beyond that, you need to be approved for an installment plan by the IRS. Your approval is going to be determined chiefly by the amount that you owe. If you owe under $10,000, approval is usually automatic.
If you owe over a certain amount (generally $25,000 or higher), you may need to furnish statements regarding your income and assets. If you owe more than $100,000, you will need to fill out a special form called the Form IRS 433-F, which will be used to determine whether you can be accepted into a payment plan. Either way, you will need to guarantee that you will make a monthly payment, and if you fail to make this payment, your installment plan may be canceled.
For many people, the most difficult step will be ensuring that their taxes have been filed on time and correctly, as this is going to matter when calculating the amount of tax that you owe. Once your taxes have been filed, it’s merely a matter of contacting the IRS and filing an application.
How Much Does an IRS Installment Agreement Cost?
The IRS charges a one-time installment agreement user fee of $120 when you enter into an IRS installment agreement. It may be less if you’re able to qualify for the fast, four month program: the fast, four month program doesn’t have a user fee or setup fee, but it does still charge you penalties and interest associated with the late payment.
If you are a low-income taxpayer, the IRS installment agreement fee may be waived. When applying for an IRS installment agreement, the IRS will usually automatically note that you’re a low-income taxpayer. If the IRS does not have you listed as a low-income taxpayer, you can fill out form 13844, the Application for Reduced User Fee for Installment Agreements.
Altogether, the IRS Installment agreement isn’t expensive, and many of the fees associated with it can be waived. In terms of penalties and interest, the IRS can only charge up to 25% of the initial debt owed, or $25 for every $100 in your initial tax assessment. After a certain amount of time, the penalties will have accrued to the maximum amount possible.
Regardless of the cost of an IRS installment agreement, it is generally going to be more affordable than any other option, including personal loans, home equity loans, and credit cards. Don’t borrow to pay your IRS tax debt! Work with the IRS to create an installment plan, instead: it’s the easiest and most direct option, and it won’t hurt your credit in many cases.
Are There Different Types of IRS Installment Agreement?
Whenever you enter into a payment plan for your tax debts, it’s considered an IRS Installment Agreement, and all IRS Installment Agreements function similarly. However, there are different types of IRS installment agreement, based on the amount of money that you owe and the amount of time that you need to pay it. In general, choosing the shortest term possible is ideal, as it will cost you less.
To start, there are both short-term and long-term payment plans:
- Short-Term Payment Plan. A short-term payment plan is paid in under 120 days. It costs nothing to setup this payment plan, but the balance will continue to accrue interest and penalties until the total balance is paid. The balance will be deducted from a checking or savings account.
- Long-Term Payment Plan. A long-term payment plan is paid in more than 120 days. It costs $31 to setup online and $107 to setup by mail, phone, or in-person. This long-term payment plan can be automatically deducted from a checking or savings account or it can be paid through direct pay or other options, but additional fees may apply if direct debit isn’t used.
There are also payment plans based on the amount that you owe:
- $0 to $10,000. If you owe less than $10,000, you will be automatically accepted into a payment plan. This payment plan will need to be paid back over a period of three years.
- $10,000 to $25,000. If you owe less than $25,000 but more than $10,000, you will usually be automatically accepted into a payment plan. However, this payment plan can be paid over a period of up to six years.
- $25,000 to $100,000, you may need to have your financial situation reviewed by the IRS before your payment plan is approved. You will need to make these payments through direct debit from your bank account.
- $100,000+. For those individuals that owe more than $100,000, the Form 433-F, Collection Information Statement must be completed in order for the IRS to determine your ability to pay the outstanding debt, based on your current financial situation.
Individuals who owe less than $25,000 will usually find it easy to get an IRS Installment plan — the most challenging aspect is likely to be finishing all of the relevant tax returns. Those who owe more than $50,000 may need to speak with the IRS regarding their financial situation.
How Do You Get an IRS Installment Agreement?
To get an IRS installment agreement, you will need to fill out Form 433-D. which is available through the IRS website. You can file for an installment agreement online or via mail. At the time of submitting Form 433-D, you will need to have already submitted all of your tax returns and successfully had them accepted by the IRS. This allows the IRS to know exactly how much you owe before you calculate your IRS installment payment.
When filling out the IRS installment agreement, you will submit banking information for your direct debit payments. After the IRS installment agreement has been accepted by the IRS, your payments will begin. You can check on the status of your installment agreement and your payments at any time on the IRS.gov website. You can also manage your installment plan online.
What Happens After You Get an IRS Installment Plan?
After you get an IRS installment plan, you will pay your IRS balance down monthly. Once the payment plan has been completed, you will be all caught up with the IRS. Your IRS Installment Plan is typically not going to impact your credit; it’s a separate agreement between you and the IRS. However, it’s important to note that there are things that could end your payment plan.
If you don’t pay your taxes on time, or file an extension on your taxes, your payment plan could be discontinued. Once you have a payment plan in place, it’s important to make sure that your taxes are paid in full and on time. Even accidentally underpaying your tax liability could discontinue your IRS payment plan, so working with a tax professional in the future is important.
If you miss a payment on the IRS installment plan (such as by not sending it in or by bouncing a direct debit), it’s possible that your payment plan will default.
While you’re on your payment plan, any refunds that you would ordinarily get from the IRS will be applied to your current balance, instead. However, even with the refunds being applied to the balance, you must continue to make your payments as scheduled: skipping one of your payments could cause your installment plan to default.
If your plan does default, you can still reinstate it. You will be charged a reinstatement fee and penalties and interest will continue to accrue; further, the IRS does not have to reinstate the plan, it will be done on a case-by-case basis. While reinstatement is being considered, the IRS will forego any attempt to collect, such as wage garnishment or bank levies. Once your plan is reinstated, you can continue as you were.
Above all, when you’re on an IRS payment plan, you cannot — in any way — fall behind on your taxes again. At Tax Samaritan, we can help you make sure that your taxes are paid on time, either by advising you on a pre-payment schedule or helping you prepare your taxes before the deadlines.
Can You Change Your IRS Payment Plan?
After your IRS 433-D Installment Agreement has been filed, there are still things that you can change about your IRS payment plan. Most of the process can be completed online, automatically.
Through the online platform, you can: change your monthly payment amount, change your monthly due date, attempt to reinstate a defaulted payment plan, or change your payment to direct debit (if it wasn’t already on direct debit). You cannot change your monthly payment amount to less than your minimum payment amount.
Online, you can check your balance at any time, to make sure you know how much you owe the IRS and that you’re still on track to pay it. You can make additional payments at any time. If you attempt to make a change to your plan that is rejected (such as reinstating it), you may need to consult with IRS directly. At Tax Samaritan, we can help.
What If You Can’t Pay Off an IRS Installment Plan?
If you can’t afford the monthly payments under an IRS installment plan, you may need to either request a settlement or declare bankruptcy. However, unlike often claimed, getting a settlement for less than you owe is rare — and declaring bankruptcy should usually be your last option. Settlements are reserved for those who will not be able to pay their current tax debts under their current situation, such as those who have seen a dramatic (and permanent) loss of income.
An IRS settlement, while available, is used by those who do not have the income or assets to pay the full amount and are not likely to ever be able to pay the full amount. IRS settlements are called an “Offer in Compromise,” and the IRS has been clear about how rare this type of compromise is. An online qualifier tool can be used to determine whether you may be able to get a settlement, but the IRS cannot give a settlement to anyone who would be able to afford payment plans.
If you’re already on an IRS installment plan and you cannot make your next IRS installment payment, there’s a 30-day grace period. You can make a payment at any time during this 30 day grace period to keep your installment plan. After the 30-day grace period, the IRS can cancel your installment plan. In this event, you’ll have to ask the IRS to reinstate it — and this depends entirely on whether the IRS chooses to do so.
Will an IRS Payment Plan Impact Your Credit Score?
An IRS installment program is not reported on your credit score, so it will not hurt or help your credit standing. However, it can help you avoid harm to your credit by helping you avoid bankruptcy or liens against you. If you attempt to restructure your debt through a bankruptcy or eliminate it outright, you’ll see significant damage to your credit score for years. If you get an IRS installment agreement (and pay it on time), you should see no adverse credit impact.
Tax liens, when filed against you, can remain on your credit report for up to seven years. They will impact your credit score similarly to a bankruptcy. However, you can have a tax lien withdrawn by the IRS by arranging for a payment plan or another method of paying back your debt with the IRS. Unlike bankruptcy, it won’t stay on your credit history forever, just until you’ve come to an agreement or paid the debt.
If you need to get tax liens removed from your property, we can help. The first step will be to arrange a payment plan with the IRS and to negotiate with the IRS — you don’t need to do it on your own.
Getting an IRS Installment Agreement With Tax Samaritan
Are you currently behind on your taxes? It’s time to take control over your financial situation with Tax Samaritan. At Tax Samaritan, we can help you get current on your tax returns and your tax payments, and we can advise you on the best option for you. You don’t need to tackle your problems alone: we can help. With the IRS, every day matters, and it’s best to fix your tax situation now.
Our goal at Tax Samaritan is to provide the best counsel, advocacy and personal service for our clients. We are not only tax preparation and representation experts, but strive to become valued business partners. Tax Samaritan is committed to understanding our client’s unique needs: every tax situation is different and requires a personal approach in providing realistic and effective solutions. Contact us today to begin your consultation.