IRS Tax Payment Plans
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It can be quite challenging to raise the needed funds to pay off your tax debt. However, the Internal Revenue Service (IRS) has put these challenges into consideration and offered available options to help individuals pay off their debt. These come together to form the IRS Tax Payment Plan. The main objective of this plan is to assist taxpayers in filing their taxes accurately and on time to the government. This allows them to pay up outstanding debts without the risk of actions that may cause financial burdens. There are several forms of tax payment plans. These include but are not limited to offer in compromise agreements, partial-pay installment agreements, stair-step installment agreements and automatic installment agreements. Each type of payment plan comes with its own set of benefits, challenges, and requirements.
Can I File If I Can’t Make My Tax Payments?
Even though it may seem challenging to pay your outstanding tax debts to the IRS, filing your returns is always advisable. If you do not, the IRS is obliged to issue a penalty known as failure-to-file, increasing your financial woes. Under this penalty, you must pay an additional 5% and your taxes every month and increase for each month the tax return is late. This can rise to a higher rate of 25%. To avoid further financial burdens with its penalties, the IRS created a Fresh Start Program. The program seeks to help struggling taxpayers pay their tax debts by waiving the penalty for six months.
What Are The Consequences Of Defaulting On My Tax Payment?
Failing to pay your taxes is a federal crime. Although the IRS may not be empowered to put you in jail or file criminal charges against you for failing to pay your taxes, they can incur hefty financial punishments against you to make up for your unpaid taxes. There are several methods, with varying financial consequences, the IRS can adopt to ensure it makes good on the taxes you did not pay. Usually, the IRS files a notice of Federal Tax Lien against the defaulter or serves Federal Tax Levy. These are explained below:
- A Federal Tax Lien
Suppose you owe more than $10,000 in unpaid taxes to the IRS, a Federal Tax Lien would be placed on your assets. By placing a Federal Tax Lien, the government makes a legal claim on your assets. The lien does not mean your property has been seized; instead, it protects the government’s interest in all your property, such as real estate and financial assets. The notice is filed to prompt you to make payments immediately.
Where a Federal Tax Lien notice on your property is ignored, a Federal Tax Levy is served. A Federal Tax Levy gives the government the legal right to take ownership over your property to satisfy the pending tax debt. This includes wage garnishment or your bank account. The government can sell your possessions, such as your cars and homes, to make up for the pending debt.
Can I Pay My Tax Debt With A Credit Or Debit Card?
There are many reasons taxpayers would prefer to use credit or debit cards to reduce their tax debts. For some of them, using credit or debit cards such as Visa, Mastercard, or American Express makes it easier for them to pay their taxes on time or reduce their tax debts. You can use your credit or debit card to make your IRS tax debt payments. However, the IRS only accepts such payments from these companies: Official Payments, Link2Gov, and WorldPay. It is essential to note that these companies charge a fee of 2% of the total bill.
The question is: is this form of payment advisable? Although this form of payment can relieve the defaulting taxpayer from running into problems with the IRS, it can create a few other problems such as the scheduled fees the credit companies charge for the transaction. Fortunately, taxpayers can get back this amount under a separate category of miscellaneous itemized expenses. Therefore, you should keep a record of these charges.
It would be best if you also remembered that credit card payments might result in interest. Despite this, some taxpayers prefer these interests incurred from credit card companies instead of those imposed by the IRS payment plans.
If your IRS tax debt is too high to make card payments, you would have to opt for an installment plan. The IRS offers numerous installment plans for you to choose from. Suppose you are unsure which installment plan would be ideal for you. You can consult a tax professional to help you make a favorable decision.
Can I Negotiate With The IRS Over Back Taxes?
The simple answer to this question is yes, you can. However, you must know the proper process to ensure you get the most out of it. If you cannot reasonably pay the debts you owe or owe an amount of $50,000 and cannot make the full payments within six years, you may want to consider entering an agreed playing plan with the IRS, and that is where negotiating begins.
First, you would need to fill the Form 433-A, which requires a Collection Information statement. The IRS collector assigned to your case will examine the information within this form, and at their discretion, would determine the amount to be paid under an installment agreement.
In the process of proposing a payment plan, be sure to offer an amount equivalent to what you would have left when your necessary expenses are excluded from your income. Doing this would ensure that you do not incur any more financial burden and be sure to cater to your needs. Avoid making a promise to pay an amount of money you cannot afford to increase the chances of getting your installment plan approved.
If you proposed the agreed amount, be sure to make the first payment on time. Make the monthly payments with the pay-slips and barcoded envelopes the IRS attached to the notices you received. You can also make payments through cheques, money orders, credit cards, or over the phone while you wait for your installment plan approval.
Once your proposed installment plan has been granted, you can may payments using two main methods:
- Direct Payroll Deduction
Using the Payroll Deduction Agreement (Form 219), you can ensure that your payments are made on time. The direct payroll deduction approach requests that your employer makes your payments to the government (IRS) on your behalf monthly using payment slips.
- Direct Debit
For this form of installment payment, you can instruct the bank to debit the amount payable to the government (IRS) every month from your check-in account. This way, you are ensured that your bank would make your payments on time to avoid incurring any penalties or having your agreement terminated.
What If My Debt Exceeds $50,000?
If your tax debt exceeds $50,000, you would need to submit Form 9465 and 433-F. These forms require that you list your line of credit, accounts, real estate, and other property. Also, you would need to disclose other information such as your monthly income, living expenses, and employment.
However, with such an excessive outstanding debt, it is advisable to consult a tax professional. With their vast knowledge and understanding of the tax system, they can assist you in offering the IRS a deal to prevent severe penalties efficiently and quickly. This application is not available online.
What If I Can’t Pay The IRS?
Suppose you have incurred tax debts beyond what you can reasonably repay. In that case, you would want to consider an Offer in Compromise. Under this payment plan, the IRS reduces the debt you owe to a reasonable amount you can pay over an agreed period. It is vital to hire a tax expert under this circumstance as it is challenging to qualify for an Offer in Compromise payment plan.
In addition to this, this payment plan takes an extended period of about a year to process. However, while you wait, you must make payments interim. This is because the IRS would not consider awarding an Offer in Compromise to taxpayers who aren’t taking the proper steps to settle their debts.
The IRS Business Plan
The IRS Payment Plan does not apply to individuals but also to small businesses. This option is available for companies struggling to make profits and owe the IRS a significant amount of debt. If the business owes an amount of $25,000 or less, it can apply for the In-Business Trust Fund agreement installment. Under this agreement, you do not need a business financial statement. The agreement gives the business a two-year period to fully pay its outstanding tax debt.
If the debt is below $25,000 but more than $10,000, the business would need to create a Direct Debit installment agreement. The business can apply for this plan over the phone or online.
The Installment Agreement Fees
Before you enter a proposal for a payment plan, it is essential to note that you need to pay a fee to start your preferred installment agreement. At the moment, the installment agreement fees are $120. However, this is likely to change over time.
Since 1st January 2017, the IRS proposed a revised schedule of user fees be applied to the taxpayer that chooses to join the IRS installment agreement or payment plan. The table is a copy of the IRS revised schedule:
|Online Payment agreement||$149|
|Direct debit online payment agreement||$31|
|Restructured or reinstated installment agreement||$89|
|Regular Installment Agreement||$225|
|Regular direct debit agreement||$107|
Can The IRS Reject An Installment Agreement Proposal?
Yes, the IRS can refuse your installment agreement proposal. There are three grounds for this. These are:
- Your collection information statement is incorrect.
Should the IRS identify that the information you provided in Form 433-A or the Collection Information Statement is incorrect, it would reject your proposal.
- You have defaulted on a previous installment agreement.
Understandably, the IRS would be reluctant to give you another installment agreement if you had one but did not pay as agreed.
- Unnecessary living expenses
Whether through charitable donations or large credit card payments, once the IRS is convinced that you live an unnecessary luxurious life, it would reject your installment agreement proposal.
Do not worry if the IRS rejects your installment agreement proposal. Fortunately, you can negotiate again. To ensure higher and better chances of having your installment agreement approved, consult an accountant to help you restructure and plan your new payment plan proposal.
Can My Installment Agreement Be Revoked?
Although your agreement with the IRS concerning installment payments bound the two of you, the IRS can revoke your installment agreement under the following situations:
- Missed payments
The IRS is entitled to revoking your agreement if you miss payments by not paying on time or not paying in full. This does not happen immediately. Generally, a month or two month waiting period is granted before the revocation is made. During this time, the IRS would send out a notice to warn of revocation or allow you to reinstate the installment agreement by paying the outstanding balance.
- Omission or misreported information
The IRS can also revoke your installment agreement if it discovers you have knowingly provided incomplete or inaccurate information during negotiation.
- Failure to pay or file taxes after the installment agreement
The failure to file or pay future income tax bills would lead to revoking your installment agreement.
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Is An IRS Repayment Plan Necessary?
Before you answer this question, you must identify how much you owe the IRS. Using the expertise of a tax professional, you can determine your outstanding tax debt and gain advice on the most effective ways of resolving it.
If you cannot pay the total amount of your debt in one lump sum, you must consider the IRS Repayment plans. The automatic installment agreement may ease the burden of your debt and prevent immediate action. However, it also incurs more financial burdens based on the nature of payments and increased penalties and interest over time.
It is usually confusing to figure out how to gain financial freedom from your tax debts. Therefore, endeavor to find a tax expert you can trust to settle your debts effectively and gain peace of mind.