IRS Payment Plans To Pay Unpaid Taxes

When you owe more tax than what you can afford, the situation can be overwhelming. Fortunately, the IRS offers multiple options to the taxpayers that have unpaid taxes. These include IRS Payment Plans, time extension to pay, currently not collectible status, Offer in Compromise, etc. Each of these options has its own rules, pros, and cons. 

Most of the people usually set up a monthly IRS payment plan. Even though some of these methods aren’t ideal, they can still help you get out of debt. Whatever option you choose will depend on the owed amount, the time needed to pay it off, and whether you are an individual or a business. The most preferred option is IRS Payment Plans. Not only does it allow you to pay off your debt in monthly installments, but it is also easier to obtain as compared to other tax relief options.

Here are a few rules you should know before signing up for the IRS Payment Plans

  • In case you owe taxes for multiple years, all the amount is bundled into one installment agreement.
  • As per the collection statute, the IRS has ten years for taking back the owed amount. If your date of collection statute expiration is near, you are required to make high monthly payments. You might not even qualify for some type of IRS Payment Plans.
  • For requesting any one of the IRS Payment Plans, you have to submit financial documents to the IRS. This includes your salary, assets, and expenses. While calculating the amount you can pay monthly, the IRS limits the expenses to a ‘reasonable amount.’ This is called the collection financial standard.
  • In the case of some agreements, the IRS issues tax lien. It is a notice that makes a public statement of the owed debt that can stop you from selling the property or getting loans.
  • Once you are in an IRS Payment Plan with the IRS, you have to ensure that each installment is paid on time. Failure to do so can result in cancellation of the agreement.

If you are done with everything mentioned above, you can start to figure out what installment agreement is the best for you. Now, you can either do it all by yourself or hire a professional who can assess your situation for determining the right IRS Payment Plans for you.

Small, quick agreements used for smaller debt

These forms of IRS payment plans can be set up easily. Also, they usually don’t have an associated tax lien. You are not required to sell any assets like property or give information regarding your finances to the federal agency.

For setting up these forms of agreement, you can either call the IRS or use the Online Payment Agreement application. To avoid a lien, you have to request the IRS Payment Plan before the federal agency starts taking collection actions against you. 

Guaranteed IRS Payment Plans

If you are eligible for this IRS Payment Plan and request for it, the IRS has to grant this agreement. Here are the requirements:

  • Owe a debt than $10,000 (not including interest as well as penalties)
  • Have filed all the returns
  • Haven’t had IRS Payment Plans for the last 5 years.
  • Can pay off the owed amount before the collection statute expires or within three years.

Streamlined IRS Payment Plan

The qualifications for this IRS Payment Plan are:

  • Owe a debt  less than $50,000 (not including interest as well as penalties)
  • Can pay the owed amount before the collection statute expires or within 6 years. 

If the owed amount is $25,000 or more, you must opt for direct debit payments. For cases where you owe $50,000 or more, you should pay off the balance and get the owed amount to less than $50,000 and then get the streamlined agreement.

Complicated agreements for larger debt

If the streamlined or guaranteed agreement does not work for you because paying the monthly payment is nor affordable or the owed amount is too much, what you can do is try one of the more complicated IRS Payment Plans. In these, the IRS figures out your if you can pay your debt by looking at your complete financial situation. Depending on the income and expenses, the IRS calculates the monthly payment. Also, you have to pay back the debt before the expiration of the collection statute. These IRS payment plans usually involve tax lien. So, it’s best that you pay off the debt to get it less than $50,000 and then apply for simple IRS payment plans. However, if you can’t afford to do this, you can select one of the following options:

Standard agreement

In this IRS Payment plan, here is what happens:

  • The IRS files tax lien.
  • You have to submit information about your finances to the federal agency.
  • The IRS puts limits on the expenses you can have.
  • The IRS might sell your assets for paying the tax balance.

Conditional installment agreement 

In this IRS Payment Plan, you can have expenses apart from the IRS’ financial standards. Also, this agreement requires you to pay off the debt within 6 years or before the expiration of the collection statute, but you will have lower monthly payments.

12-month lifestyle adjustment installment agreement

In this IRS Payment Plan, you will have a year for changing your lifestyle so that you are able to meet the IRS’ collection standards. 

The partial pay installment agreement

It is same as the standard agreement with one small difference. In this, you are not required to pay off the complete debt before the collection statute expires. Every two years, the IS will re-evaluate the agreement to see if you can afford to pay a higher amount.

IRS Payment Plans: Points to Remember

Before you apply for any of the IRS payment plans, you have to file returns for the past few years. If you are unable to, you might end up with a failure-to-file penalty. Also, you should double-check the amount you have to pay. 

If you file your taxes by yourself, you should get a tax professional to take a look at them and make sure that you actually owe the amount. Don’t forget to include the interest as well as penalties in your debt. If the owed amount is $10,000 or more, you should get a tax attorney to advocate for you. The higher the owed amount, the more complicated your case will be.

Lastly, you need to get all the financial documents to provide your income and expenses. These can include bank statements, pay stubs, credit card statements, and documentation of assets and liabilities. Line up all the information for at least three months before the tax due date. 

This might seem complicated and it is. So, it is best that you take the help of tax professionals for checking the available IRS Payment Plans and figuring out the best one for you.