- April 22, 2020
- Posted by: Crystal Larsen
- Category: IRS Payment Plans
It is very common to owe more taxes than what you can afford to pay at once. Thankfully, there are several IRS Payment Plans that you can select depending on the owed amount or the purpose of the debt.
Before we actually discuss the IRS Payment plans, it is important that you know what to do before applying for the same. The first thing is to file all the pending returns. Failure to do so will lead to a penalty. Next, double-check the amount that you need to pay. It is best that you hire a tax resolution service to do your returns, especially if the owed amount is $10,000 or more. The tax experts from the firm will help in calculating the right owed amount as well as interest and penalties.
After this, you need to start gathering all financial documents related to your expenses and income. This includes bank statements, pay stubs, credit card statements, and documents of liabilities and assets. Lastly, you will be lining up all the information for at least three months prior to the due date. Exactly how much information is needed will depend on the IRS Payment plan you are going for.
Regardless of what your tax situation is, there are IRS payment plans for you. Here are the 5 IRS payment plans that can help in reducing the financial burden on you because of tax debt
Payment extension or short-term payment agreement
This IRS payment plan is for taxpayers who owe less than $10,000 in debt and can pay the debt in 4 months. Also known as the guaranteed installment agreement, you can use this plan for making monthly payments. This plan is more manageable as there is no minimum amount. However, you must pay as soon as possible to avoid interest.
If you are able to pay off the debt in 120 days, no additional fee will be incurred. To get this IRS payment plan, you need to fill the Online Payment Agreement Application and Form 4868.
Individual Installment Agreement
This IRS Payment Plan is for individuals or businesses that owe more than $10,000 but less than $50,000 and need more than 4 months for paying the complete debt. The payment for this plan involves making auto-debit payments from a checking account, a credit card, a payroll deduction, or through an online payment agreement application. Like the short-term payment agreement, in this payment plan also, you will decide how much you want to pay. The IRS advises getting a high manageable amount for reducing the accumulating interest.
In a streamlined installment plan, you will have 6 years to pay off the debt. For calculating the monthly payment, the IRS will be dividing the balance by the 6-year period. This is the default minimum amount that you can negotiate. There is no need for any additional information to get the plan approved. However, for debt less than $50,000 and more than $25,000, you will have to document your expenses and income.
There are some fees associated with this IRS Payment Plan:
- $120 for a payroll deduction or standard agreement.
- For a direct debit agreement, you will be charged with $52. You might be eligible for a reduced fee of $42 if your income is less than the 250% of the Federal Poverty Guidelines
For this IRS Payment Plan, you will need to fill the online payment agreement application Form 9465 for the Installment Agreement request and form 13844 for the reduced user fee.
Installment agreement more than $50,000 debt
This is one of the high-debt IRS payment plans for debt that is above $50,000 and requires more than 4 months to pay off the debt. This has a complicated setup process, and it is best that you take the help of tax experts to get this installment agreement.
You will need financial information on the following:
- Monthly income
- Living expenses
- All accounts
- Line of credit
- Assets including real estate
Taxpayers with a huge debt like this won’t always be qualified for an installment agreement. This is why you need the help of tax resolution services. They can help explain your situation to the IRS.
The fee associated with this IRS payment plan is similar to that of the individual installment agreement. You will need to fill the form 433-F for Collection Information Statement and Form 9465 for Installment Agreement Request.
Standard Business Agreement
This IRS payment plan is for taxpayers running a small business and owing less than $25,000 in back taxes. In this payment plan, you can use the online payment agreement application, but the forms will be a little different. For example, you won’t have to provide the IRS with a financial statement. But, you will have to file an IBTF-IA or the In-Business Trust Fund Express Installment Agreement online. You will have 2 years to pay the owed amount. If you owe more than $25,000 and less than $10,000 for small business, a direct debit installment agreement can be installed.
Undue hardship extension
If any of the above-mentioned IRS payment plans don’t work for you, you can go for this option. If you are able to prove that paying off the debt would result in significant financial loss or under hardship on you, you might be able to get an extension. It is important that you apply for this as soon as you can. You will need the following documents:
- An itemized list of expenses and income for 3 months prior to the due date.
- Statement of liabilities and assets like retirement accounts, auto loans, or student loans.
With this IRS payment plan, you can get an extension of 6 to 18 months. There is no fee associated with this payment plan. However, if the application is not approved, the IRS charges a late penalty fee. For this IRS payment plan, you will have to file the Form 1127 or the application for extension of time.
It is easy to get overwhelmed while dealing with the IRS. Luckily, there are several IRS payment plans that can cover any situation that involves back taxes. If you think that you need any help, you can always hire tax experts from the top tax resolution services who can help reduce your financial burden.