Tax Solution: Installment Agreement
Used When: You can pay off your full tax debt over time.
Sometimes you can pay your taxes in full, just not right now. If that’s you, you are a perfect candidate for an installment agreement.
An installment agreement is a payment plan, and depending upon how much you owe the IRS, you will have an easier or a harder time getting them to accept your proposal for an installment agreement.
In some situations, you can actually use an installment agreement to pay less than the full amount of tax you owe (partial pay installment agreement). But this section talks about installment agreements that pay the full amount of your tax debt.
Most installment agreements must pay off the full tax amounts in under 60 months (or before the statute of limitations for collecting a tax expires).
The IRS usually has 10 years from when it assesses a tax to collect it. So if you engage in an installment agreement with the IRS, you have to have the amount paid off before that statute expires! For larger installment agreements, this means paying off the full amount within 72 months. For other types of installment agreements we’ll go over later, you have to pay it off sooner.
Standard Installment Agreement – If You Owe Over $50,000
If you owe over $50,000, you have to negotiate with the IRS to get your installment agreement! They require that you send them a financial statement that details your cash inflow and cash outflow. They’re going to want to analyze everything about you to make sure that you’re making the biggest, fattest payment that you can! And on top of that, the IRS is probably going to file a lien against you, which will make it harder to get loans and will destroy your credit score.
Needless to say, many people (perhaps you!) don’t want to have to disclose all of their financial information to the IRS–their bank accounts, retirement accounts, how much they spend on food. So is there a way that you can get an installment agreement without having to give them a grand tour of your financial life?
Streamlined Installment Agreement – If You Owe Less Than $50,000
If you owe less than $50,000, you can get an installment agreement that must be paid off in over months without having to make full financial disclosure. Also, with streamlined installment agreements, it is likely that a lien will not be filed. Additionally, you can pay down what you owe to get it to $50,000 so that you can qualify for a streamlined installment agreement.
Guaranteed Installment Agreement
If you owe under $10,000, and can pay off your tax debt within 24 months, you are guaranteed an installment agreement. This is the only situation under which I would ever recommend someone take on their IRS problems by themselves…if you know you owe the amount, and you can pay $10,000 within 24 months.
Penalties and Interest Continue to Accrue
The biggest kicker about the installment agreement is that penalties and interest continue to accrue! Why? Because you still didn’t pay the amount you owed on time! Penalties accrue at upwards of 10%+ per year.
All Returns Must Be Filed
Installment agreements will never be considered if you are not current on filing your taxes, and current on withholding / payments for the current period.
What about business installment agreements?
Business installment agreements are a whole different ballpark. There are a littany of issues related to the trust fund recovery penalty and payroll taxes that complicate installment agreements for businesses. You should read the business tax and trust fund recovery penalty sections of our website for more information.