IRS Direct Debit Installment Agreement Plan Benefits and Details

direct debit installment agreementA direct debit installment agreement (DDIA) can be defined as an IRS payment plan in which a taxpayer pays off a tax balance owed over a series of monthly automatic debits from his or her bank account (normally checking). This could fall under the three main three categories of an installment agreement, which include Guaranteed, Streamlined, and financially verified installment agreements.

If you are not using the Online Payment Agreement application provided by the IRS, Section 11 on Form 9465 will provide you the ability to input your checking account number and routing number in order to make monthly payments. Of course, this is not the only way to pay your monthly payments as you can have them deducted from payroll by your employer, or you may pay by credit card, money order, or by check. However, due to recent announcements by the IRS in February of 2011, there are even more benefits now to a direct debit Installment Agreement than previously.

Direct Debit Installment Agreement Benefits

Direct Debit Installment Agreements have a few benefits but also some disadvantages. Historically, IRS Installment agreements that are paid monthly using a direct debit payment method tend to lead to less defaults, and penalties assessed to the taxpayer. Here are a few of the benefits:

  • Ensures a better chance of timely payments to avoid additional penalties
  • Has a lower user fee to setup a DDIA ($52 vs. $120 for other types of payment arrangements)
  • Will save you the cost of postage compared with say mailing a check every month
  • Lower possibility your payment could be lost in the mail, misplaced by the IRS, or misapplied
  • Generally, will lead to a tax lien being withdrawn after completing a series of successful payment
  • Much easier to stay in compliance with the IRS and prevent your agreement from defaulting
  • Small businesses can now obtain streamlined installment agreements with up to $25,000 now so long as they setup a DDIA
  • Individuals can now obtain streamlined installment agreements with up to $50,000 in tax liabilities now so long as they setup a DDIA

IRS Direct Debit Installment Agreement Drawbacks

Just like most things in life, a Direct Debt Installment Agreement has its disadvantages. In it debatable as to what all the drawbacks of a DDIA are, but one thing most tax professionals agree on is that a DDIA provides the IRS with the information they need to levy your bank account if you default on your Installment Agreement. The same applies if you setup an installment agreement with the monthly payment deducted from your wages or payroll. Again, if you default on an existing agreement and fail to come to a resolution with the IRS, they could now easily levy your wages because you provided them with all the information they need to do so. However, it could be argued that those who are serious about paying off their taxes or coming to a resolution with the IRS have many more benefits for setting up a DDIA versus other types of payment arrangements with an Installment Agreement.