Tax Installment Agreement: What You Need to Know

It is not uncommon in this day and age for consumers to simply assume any debts owed will be eligible for some sort of tax installment agreement. Americans routinely pay credit card debt in monthly payments and the same can be true for variety of other debts that qualify for repayment through installment plans. For example, if you are lacking in health insurance and incur a large hospital bill, in many cases they will accept smaller partial payments until the debt is repaid. While this option is available for some debts, not all debts are eligible for installment agreements. This may be the case with back taxes that are owed to the IRS. For this reason it is important all taxpayers who owe a debt to the IRS understand how tax installment agreements work in regards to tax bills. Here are a few things you should consider before assuming you will be able to repay the IRS via an installment plan.

• Not all back taxes are eligible for tax installment agreements – The IRS is unlike creditors or lenders. They are not obligated to accept an installment plan agreement and in many cases they exercise this right. If information on your IRS forms are incorrect or incomplete, a request for an installment plan agreement may be denied. It is important that you provide all the requested documentation and that the information provided is correct, as the IRS will check with public records to verify submitted information. Another reason installment agreements are often denied is the IRS feels you will not make timely payments based on past history or “fudged” information on required documentation. If your application has been denied, you can appeal the decision or enlist the help of a tax professional for further assistance.
• You will end up paying more - Like any other installment plan, you will always end up paying more money in the end for the privilege of paying over time instead of a lump sum payment paid at once. Interest is applied to money owed and will increase the overall amount of money paid on your tax bill. Unfortunately many taxpayers are not in the position to pay their tax bill without the help of an installment plan. If this is the case, it is always better to work with the IRS to set up payments versus ignoring the tax bill all together, which will definitely cost you more money due to penalties and other fees that result from an unpaid tax bill.
• On-time payments are required – If you have successfully applied for and have been granted an installment plan with the IRS, it is imperative you make all agreed upon payments on or before the date due. As previously mentioned, the IRS is not a creditor or lender and will not respond as such when dealing with a taxpayer who fails to meet the terms of an installment plan. Before beginning an installment plan for taxes owed, be sure you will be able to make each payment in full, on time. If for any reason your financial situation changes and you are unable to meet the required payments, contact the IRS immediately to discuss your situation.

The most important thing to remember when dealing with the IRS and unpaid taxes is the need to be upfront and honest. You cannot hide from the IRS and attempting to do so will only serve to increase your financial problems.

Related posts:

1. Can’t Pay Taxes? Set Up an Installment Agreement
2. Why an IRS Installment Agreement Will Cost You More
3. Importance of Paying Your Installment Agreement On Time
4. What If the IRS Denied My Installment Agreement Request?
5. Having Trouble Paying Your Installment Agreement with the IRS?