If you’re in a tight financial spot and can’t afford to make your monthly IRS installment agreement payments, you may qualify for one or more types of tax relief. The IRS People First Initiative has suspended the requirement to make payments on existing installment agreements until July 15, 2020, which means you can temporarily avoid paying the IRS and use that money for other purposes. If your financial situation has changed significantly and you have little doubt it will improve soon, there are various other programs available as well to ease the financial burden.
How to Get Relief from IRS Installment Agreement Payments
You can stop sending payments to the IRS until July 15 without risking a default on your payment plan. By law, interest will continue to accrue on your unpaid balances.
How you go about stopping those payments will depend on which type of payment method you use.
Stopping Payment On a Direct Debit Installment Agreement
If you pay the IRS by direct debit, you need to take action to stop your monthly payments. If you don’t do anything, the payments will continue to come out on your monthly payment date.
You can contact your bank and order them to stop payment. Your bank may charge a fee for this and may require a certain number of days’ advanced notice to stop a payment. Make sure you inform your bank to allow the payments to restart for any payment scheduled after July 15, 2020.
You can also call the IRS and ask them to stop the payment. The IRS may require ten days’ notice before the payment is scheduled.
Expect to wait on hold for 30 to 60 minutes or more. If you’re working with a tax professional, they can call the IRS on your behalf and have the payments stopped.
Stopping Payment on a Regular Installment Agreement
If you send your payments to the IRS each month, you can simply stop making payments until July 15. For example, don’t send in a check for any payments due before July 15 if you’d prefer to avoid making these payments.
If you can afford to keep making payments, you’ll reduce the amount of interest you’re charged and pay off your taxes owed more quickly. Whether or not you choose to make any payments due before July 15, be sure to resume making payments due after July 15 to avoid risking a payment plan default.
See If You Qualify for Alternative Tax Relief Programs
The coronavirus pandemic has significantly changed many people’s financial situations. If you’ve seen your income reduced, you may want to see if you now qualify for other tax relief programs, such as partial payment installment agreements, currently not collectible status, or an Offer in Compromise.
Partial Payment Installment Agreements
The IRS generally requires that your installment agreement payments are large enough to pay off your balance within 72 months or by the date your taxes owed will expire, whichever comes first. However, the IRS will sometimes allow lower payments that won’t pay off your taxes owed in full, which is known as a partial payment installment agreement (PPIA).
You’ll need to provide proof that your financial situation does not allow you to pay off your taxes owed in full. If your PPIA is approved, it could result in lower monthly payments and partial forgiveness of your taxes owed once the collections statute expiration date expires.
Currently Not Collectible Status
Currently not collectible (CNC) status allows you to avoid making any monthly payments towards your taxes owed. The IRS will also not attempt to garnish your wages or levy your assets.
To receive CNC status, you’ll need to provide detailed financial information to the IRS to show that you can’t afford to make monthly payments. Keep in mind that interest and penalties will continue to accrue while your account is in CNC status, and the IRS may check-in with you periodically to see if your financial situation has changed.
If you qualify, you can generally receive CNC status much more quickly than you could receive an Offer in Compromise (OIC), but CNC status does not permanently eliminate your liability.
Offer in Compromise
An offer in compromise is the king of all tax relief programs because it provides permanent forgiveness of some of your taxes owed. However, there are several things to keep in mind before you apply for an OIC:
- The OIC application process is long, and the IRS generally takes a minimum of six months to process your offer. Meanwhile, the time period the IRS has to collect your taxes owed is extended every day that your offer is pending.
- The IRS rejects many OICs because they don’t agree with the taxpayer’s calculations of their equity, income, or expenses.
- If your taxes owed is close to expiring, you may want to consider requesting CNC status instead and waiting for the collections statute expiration date to pass.
If you’ve seen a big drop in your income due to the pandemic, you may want to use the IRS OIC Pre-Qualifier Tool to determine whether an OIC may be a good option.
If you need help seeking a partial payment installment agreement, currently not collectible status, or an Offer in Compromise, a tax professional can help you understand the eligibility requirements and help you with the application process.