An installment agreement, otherwise known as a payment plan, is an agreement between an individual or business and the IRS, to pay off tax balances. These are used when a person knows that they won’t be able to pay their taxes in full by the deadline.
If you find yourself or your business in this position, here’s what you need to know about installment agreements.
The Different Types of Installment Agreements
There are three major types of installment agreements to pay off taxes. To be eligible for an installment agreement, you must file all past-due tax returns.
Interest and penalties continue to accrue after an installment agreement is set up. The installment agreement does not eliminate those charges.
Direct Debit Installment Agreement (DDIA)
In a DDIA, your monthly installment payment is electronically debited from your bank account every month. A DDIA is the least costly and most convenient way to set up an installment agreement with the IRS or other tax agency.
Streamlined Installment Agreement
The streamlined installment agreement is available to individuals who owe $50,000 or less and businesses that owe $25,0000 or less. No financial information is required if you pay the balance in a relatively short period of time.
Partial Payment Installment Agreement (PPIA)
A PPIA is a monthly payment plan for anyone who cannot pay their taxes in full before the statute of limitation on collection expires. Detailed financial information is required before the tax agencies will set up a PPIA. To remain in a PPIA, all payments must be timely each month. If a payment is missed, the agreement can be canceled and collection action can begin.
How to Apply for an Installment Agreement
To apply for an installment agreement, you need to fill out IRS Form 9465 and mail it to the tax agency, or call the tax agency and request an installment agreement by phone. If your tax balance is small or you can pay it off in 12 months or less, you generally do not have to provide current financial records.
If that’s not the case, you’ll need to complete Collection Information Statement Form 433-F and provide relevant bank statements and other records that verify your current income and expenses.
What to Expect From an Installment Agreement
Installment agreements require monthly payments. Most agencies require the payments to be directly debited from your bank account or paid online. Do not expect to receive any money back on your tax return when you’re in an installation agreement.
It’s important to adjust your withholding or quarterly estimated payments each year so that you are not underpaying or overpaying the tax due. The tax agencies will also file a lien when you set up an installment agreement.
Installment agreements have set up fees as well. Expect to pay anywhere from $30 to $225 in fees depending on the tax agency and the type of installment agreement. The fee will be added to the total balance owed.
Navigate the Installment Agreement Process With a Tax Attorney
It’s possible to request an installment agreement yourself, but you may end up paying more than you need to. A tax attorney can negotiate with the IRS on your behalf and possibly secure a lower payment.
To ensure the process goes smoothly, work with tax attorney Mindy Meigs on your installment agreement. She’s an Orange County tax lawyer with 15 years of experience as a trial attorney for the IRS Office of Chief Counsel. Now, she represents taxpayers in all aspects of tax controversy and tax litigation.
If you’re unable to pay off all your tax debt, contact Mindy to get started on the application for an installment plan today.