Have unpaid taxes? If you’re facing a large tax debt to the tune of several thousands of dollars, it may seem like an impossible feat to pay it off.
Luckily, contrary to popular belief, you don’t have to pay this debt off all at once! Why? The IRS would rather receive your money in installments than not at all. Learn more about the process of arranging a payment plan with the IRS below.
5 Steps to Set Up a Payment Plan with the IRS
Tax debt relief is in sight! Follow these five steps to start paying off your unpaid taxes today:
1. File Your Tax Return
The first step to setting up a payment plan is figuring out exactly how much you owe in unpaid taxes. Even if you don’t have the money to pay your tax debt, you still have to complete your yearly tax return. If you have unfiled tax returns for previous years, you will need to file those as well.
2. Request an Installment Agreement
There are two types of installment agreements: a short-term payment agreement (also known as a payment extension) and an individual installment agreement.
A short-term payment agreement is if your debt is under $10,000 and you can pay it in less than 120 days. An individual installment agreement is if you owe over $10,000 in unpaid taxes, with the default of 72 months to pay off your debt (unless you negotiate another payment plan).
Installment agreements are subject to the individual. It’s best to work with a trusted tax professional to decide the option that’s right for you. If neither of these options work for your situation, your tax advisor may suggest negotiating an Offer In Compromise, a negotiated agreement with the IRS to pay less than the full owed amount.
3. Choose Your Monthly Payment Amount
How much can you dedicate to paying off your tax debt each month? The IRS will want to know in your application. Work with your tax accountant to decide on a monthly payment amount for your proposed payment plan that fits easily into your budget. Although you can always pay more, this is the minimum amount you will pay each month.
The IRS will respond to your installment agreement request in approximately 30 days.
4. Pay the Installment Plan User Fee
Once your payment plan is accepted by the IRS, you may have additional fees to pay. If you set up a short-term payment agreement and pay your debt within 120 days, there are no additional fees. However, if you set up an individual installment agreement, you are required to pay either a standard agreement fee, payroll deduction agreement fee, or direct debit agreement fee. If you are a low-income taxpayer, you may qualify for reduced fees.
5. Make Your Payments On Time
Now that you’ve set up an agreement with the IRS to pay your debt, it’s important you stick to that agreement to avoid future financial hardship. There are two ways to make your payments: by mail or online. If you’re paying by mail, make sure to mail your monthly payment well in advance (at least a week). If you’re paying online, payments are accepted via IRS Direct Pay and can be submitted in minutes.
For whatever reason, if you know you’re not going to be able to make a payment, contact the IRS as soon as possible. That way, the IRS will be informed and may try to work with you, rather than initiate collection actions.
Need Help Arranging a Payment Plan with the IRS? We can help!
Requesting an installment plan can be a tricky process. From the different forms and fees you have to submit, you’ll want to make sure you do it right the first time. And if the IRS doesn’t accept your first submission, you may have to negotiate with them which can be daunting without the help of a professional.
When you work with trusted tax professionals like Robert Hall & Associates, you have us in your corner fighting for you! As enrolled agents, we know the ins and outs of working with the IRS and can help determine, submit, and negotiate the right payment plan for your financial situation. Call us today at (818) 242-4888 or schedule your free 30-minute consult now to get started.
