In an ideal world when it comes time to file your income tax return you would break even or if you are lucky receive a tax return. That is not the case for all individuals and as is often the case a tax bill is due that you are not able to pay in full immediately. This can result in a lot of stress for the person owing the IRS. Fortunately there are options available to individuals who owe taxes but do not have the resources to pay in full. You may qualify for an income tax payment plan if you can prove you have adequate income or assets available to repay your tax bill in monthly installment payments. Filing your tax return is important to avoid late penalties, therefore if you know you are going to owe the IRS but do not have the money to pay immediately, you can fill out an installment agreement form and submit it with your tax return. People owing less than $25,000 generally find it relatively easy to obtain an installment plan agreement. Here we look at some of the options available to you if you are unable to pay your tax bill in full.
The most common type of installment agreement (IA), the Guaranteed IA is ideal for taxpayers who owe less than $10,000. To qualify you must have filed and paid any taxes due on time in the past five years and not have any current IA’s with the IRS. You must agree to pay the balance within three years and not have filed bankruptcy or have any other payment arrangement made with the IRS. The process includes completing Form 9465 and calculating a monthly payment by dividing the amount owed including interest and penalties and dividing that amount by 30 months. You then sign and date the application (if not filing online) and submit to the appropriate IRS address. Include any fees applicable with your application.
This IA is used by individuals who owe more than $10,000 but less than $25,000. The qualifications are the same as listed in the Guaranteed IA with the only difference being the amount owed and the length of time needed to repay the tax bill. The Streamlines IA allows for 5 years versus 3 to repay the balance. The process is similar to that of the Guaranteed IA except you will determine you monthly payment based on 50 months versus 30 months.
The Partial Payment IA (PPIA) is an option for individuals who reach an agreement with the IRS to repay only part of the tax bill owed. If you are unable to meet the requirements necessary to repay the tax bill in full, the IRS may agree to a PPIA. If you make the required payments per the agreement, the IRS will not pursue collection efforts. They will however ask to see your financial records every two years to determine if you should pay more or terminate the agreement. You must complete and submit Forms 9465 and 433-A when applying for a PPIA. Include with these forms a letter requesting the PPIA as well as 3 months of income and expense documentation.
The summary information provided here can give you an idea of what options are available to you when you face a tax bill that you are unable to pay in full. It is recommended whenever you owe the IRS and wish to apply for an installment agreement, that you consult a tax professional. A person with the experience and training in tax laws can help you avoid making mistakes that could end up costing you more money in the long run.