IRS Installment Agreement: Tax Answers, Form 9465, & Guidelines
An IRS Installment Agreement, or IA, as defined by the IRS, will “allow for the full payment of the tax debt in smaller, more manageable amounts.” In other words, you repay your tax debt over a period of time which is commonly no longer than 72 months (6 years) or by the CSED, depending on the type of installment agreement you go with. Installment Agreement carry an interest rate and penalties which means the longer you take to pay off your tax debt, the more you end up paying in the end (more than original balance). Knowing which IA to use and the requirements that need to be met is important before going through the steps of how to file an IA. In general, if you do not have money left over each month after your living expenses are accounted for (and the IRS has their own set of acceptable monthly expenses), then an IRS Installment Agreement is not the best fit for you. If you realize that you do have discretionary income after your living expenses are computed, make sure that your monthly IRS payment ends up reducing your principal tax balance (when taking into account interest and penalties) each year, otherwise you could digging yourself a bigger hole.
If you realize for the current year that you cannot pay your taxes, you need to make sure you first file anyway for this year or any previous year for taxes owed. An IRS Installment Agreement should be used when you feel you cannot pay your taxes in full nor can you receive a loan from the bank or financial institution at a lower interest then the IRS will give you. Interest rates with the IRS fluctuate but currently the interest rate on underpayments for individuals is roughly 3% (compounded daily q4 2011) coupled with .25% failure to pay penalty (compounded monthly). Typically, you should look to pay 3-12% in interest on the balance owed per year (depending on current IRS interest rates). Get a better understanding of what are different typical installment agreements and which one is right for you.
This is the easiest of the installment agreements to obtain. This installment agreement is “guaranteed” as long as you meet the requirements set forth by the IRS. This is only offered to those
taxpayers that owe $10K or less in taxes and the total amount can be paid off within a period of 3 years or generally by the CSED.
If you owe $25K or less as a business or $50k or less as an individual and you agree to a direct debit payment method, a streamlined installment agreement may be the best choice since it does not require verification of financial assets, expenses, and income (although if you owe between 25k-50k as individual the IRS may still request a collection information statement). If you do agree to direct debit payment method, then streamlined installment agreements are best for businesses that owe $10k or less and individuals who owe $25k or less. Normally with individual The IRS has specific requirements a taxpayer must meet in order to qualify for this type of payment plan and requires specific documents to be completed and submitted to the IRS before reviewing your case.
A direct debit installment agreement (DDIA) is really just an installment agreement with the monthly payment being paid via direct debit or withdrawn directly from your bank account. Direct Debit Installment Agreements are normally provided to taxpayers with $25,000 or less in tax debt. However, the IRS in February 2012 stated that individual taxpayers who agree to a direct debit installment agreement can qualify for a streamlined installment agreement with tax debt up to $50k.
This type of installment agreement is more difficult to obtain because of the additional paper work needed. This type of installment agreement is available to those taxpayers that owe over $25K in taxes and who do not want to pay via direct debit. Otherwise, it is best for taxpayers who owe over $50k in taxes (even if willing to pay direct debit) or for those you cannot make the minimum monthly payment on a Streamlined Installment Agreement. The IRS will need to get a better understanding of your financial situation to determine if they will allow you to pay taxes owed over a period of time.
This form of installment agreement allows you to pay less than the total amount owed over a period of time. Since you end up paying less, this is a difficult installment agreement to obtain. You will have to fully disclose your financial information to the IRS in order for them to consider your case.
Get answers on how you can appeal an IRS Installment agreement that was rejected, terminated or is proposed to be terminated. Understand the process, procedure, and your rights as a taxpayer.
Common questions taxpayers want to know about installment agreements.