Taxpayers with overdue tax bills don’t have to panic about how to pay their taxes. In most cases, if you do not have enough money to pay the full amount of taxes owed, but you want to still try to pay your taxes, the IRS can extend help in the form of an installment payment plan.
Suppose you have an existing installment agreement for taxes that you owed in previous years, and now cannot pay the taxes you owe for this year. Can you take out another installment agreement?
Unfortunately, the answer is no. There can only be one installment agreement that includes all of the tax years for which you owe an outstanding tax debt.
A new, unpaid tax balance due would automatically put your existing installment agreement into default. You would then need to contact the IRS and have the existing installment agreement amended to add the new debt.
The consolidated installment agreement combines tax penalties and interest owed for both amounts owing.
During the installment plan period, tax penalties and interest on the overdue balance will still accrue until the total amount is paid off.
How to Set Up an Installment Agreement with the IRS
To set up an installment agreement, you will need the following information:
- Your most recent tax return
- Your bank account routing and account number
- Your contact information
- The amount you owe in outstanding taxes.
You can apply online for a payment plan if your tax debt is less than $50,000, including penalties and interest. If you owe $50,000 or more, you will need to download and complete a few forms – where you will provide information about the original balance and the anticipated new balance and submit it by mail.
Four Common Types of IRS Installment Agreements
The IRS has a number of common installment agreements that you can request depending on the amount of taxes owed and your qualifications.
1. Guaranteed Installment Agreement
A taxpayer who owes less than $10,000 may be eligible for a Guaranteed Installment Agreement, a short-term payment plan, if they can meet the following criteria:
- The taxpayer must have filed all income tax returns and paid taxes for the past five tax years.
- The taxpayer cannot have entered into an installment payment agreement to pay income tax within the past five years.
- The taxpayer must be unable to pay taxes in full by the due date
- The taxpayer must be able to make a payment of at least the entire balance, including penalties and interest divided by 30.
- The taxpayer must be able to pay the total balance due within 120 days.
2. Streamlined Installment Agreement
If the taxpayer owes $50,000 or less in taxes plus tax penalties and interest, they may be eligible for a Streamlined Installment Agreement. To qualify, the taxpayer must be able to pay the outstanding balance plus penalties and interest within 72 months. To do this, you must make a monthly payment of a minimum of $25 or the full balance due plus penalties and interest divided by 50, and would need to pay the greater amount between the two payment options.
3. Non-Streamlined Installment Agreement
If a taxpayer owes more than $50,000, they will require a long-term payment plan such as the Non-Streamlined Installment Agreement. Unlike the other installment agreements, the taxpayer must additionally complete Form 433-F, which provides the following information to the IRS:
- All current financial assets and property you or your business own
- Amounts owed by you or your business
- Amounts owed to you or your business
- Employment information and wages
- Other income
- Monthly expenses
The financial information outlined in this document will determine what sources the taxpayer has to repay the outstanding tax debt, and will be used by the IRS to either accept or reject the request for a Non-Streamlined Installment Agreement.
4. Partial Payment Installment Agreement
If a taxpayer cannot repay the installment debt within 72 months, they will need to contact the IRS to make payment arrangements, such as a partial payment installment agreement, which allows you to pay off your debt through a monthly payment to the IRS that is based on what you can afford after essential living expenses.
In order to qualify for a Partial Payment Installment Agreement, you must prove financial hardship and this could mean gathering documents and bills to prove this hardship. After the IRS reviews the document, you may be required to sell some of your assets to resolve a portion of the debt.
Consequences for Evading Payment of Taxes Due
If arrangements are not made to pay taxes due, the IRS will initiate the collection process. The IRS can press charges, put a federal tax lien on your assets and property to secure repayment of taxes owed, garnish your wages, or place a tax levy to seize and liquidate your accounts at all financial institutions.
The Benefits of Working with a Tax Lawyer
Income taxes are complicated, and it is easy to get nervous about dealing with the IRS when you owe back taxes. In most outstanding tax situations, it makes sense for you to hire a tax lawyer.
A professional tax lawyer will investigate the amount of taxes you owe and confirm collection actions already taken by the IRS.
Experienced tax lawyers have the knowledge and negotiation skills to protect you against Revenue Officers and battle the IRS on your behalf.
If you are trying to deal with outstanding tax debt, a tax lawyer can guide you through the resolution process and avoid costly mistakes. Plus, they may be able to negotiate a lesser settlement via an Offer in Compromise or partial relief of tax debts. They can also protect you against garnishment or tax liens.
If you owe back taxes to the IRS, contact a Polston Tax Lawyer to protect your rights and help you negotiate a repayment plan you can afford to get you out of tax debt. You can give us a call at 844-841-9857 to schedule your free consultation.