If you find yourself owing money to the Internal Revenue Service (IRS) that you cannot pay in full, setting up an installment agreement allows you to pay off your tax debt through affordable monthly payments. The IRS offers several installment agreements depending on your financial circumstances and the total amount owed. Let’s look at the various options and how to choose the right installment plan for your needs.
Guaranteed Installment Agreements
The guaranteed installment agreement is an ideal option for many individuals with $10,000 or less in combined tax, penalties, and interest. As the name implies, the IRS must accept your proposed payment plan if it meets the agency’s streamlined criteria based on your income and tax debt balance. That removes much of the uncertainty and negotiation from the process.
Partial Pay Installment Agreements
In cases where the IRS deems you cannot fully pay off your tax debt before the 10-year collections statute expiration, they may agree to a partial payment installment plan. Under these terms, you pay as much as you can reasonably afford each month, satisfying the tax liability to the extent possible before the statutory period elapses. The remaining unpaid balance is forgiven at the end of the collection window.
Routine Installment Agreements
A routine installment agreement may be your only option for more significant outstanding balances above $50,000 or scenarios where you do not meet the guaranteed or partial pay plan criteria. In these plans, the IRS has broad discretion to set your payment amount, duration of payments, and other terms based on their analysis of your financial records. Negotiating reasonable terms can sometimes be difficult on your own.
Direct Debit or Payroll Deduction Plans
Regardless of the specific installment agreement type, taxpayers can have their monthly payments automatically deducted directly from a bank account or payroll disbursement. Setting up a direct debit plan can give you payment due date flexibility and prevent potential missed installments that could default the agreement.
Determining the Right Plan
In deciding which installment agreement option is most suitable, you’ll want to carefully review your full financial situation – income, expenses, equity in assets, and the total amount owed to the IRS, including projected accruals. Those meeting guaranteed or partial pay plan criteria should leverage those opportunities. For more significant balances, be prepared to negotiate payment amounts and terms you can realistically manage long-term.
Weighing factors like age, health, the likelihood of fluctuating future income and expenses, and the ability to obtain loans can also shape which installment agreement structure is optimal for your circumstances. The IRS generally aims to settle your debt as quickly as possible based on what you can pay each month.
Working with a qualified tax professional can ensure you make the most appropriate installment agreement choice aligned with your finances and abilities. With an affordable plan, you can methodically resolve your IRS debt over time while avoiding aggressive collections actions.
Schedule a call with me today to find out the best installment agreement option for you.
