Payment Plan to IRS

Need to Pay Your Taxes, but Don’t Have the Funds? We Can Help!

If you owe the IRS, you know there isn’t a lot of time to come up with the funds to pay your balance due in full.  Thankfully, you have options.  The IRS does understand (I know, hard to believe) and has some payment plan options available to help.  There are Installment Agreement, such as Streamlined, Expanded, Direct Debit, depending on what you can afford and your total balance due.  There are also more extreme options like Currently Not Collectable or Offer in Compromise programs.

What If I Choose to Ignore the IRS?

First, this is a bad choice.  You should not ignore the IRS and plan to pay your tax debt. If you do choose to ignore the IRS thinking they will give up and go away, the IRS will enforce collection action which can include filing a tax lien, levying your bank account even garnishing your wages. Note, there is a difference between a Tax Lien and a Tax Levy.

• Federal Tax Lien

The Federal Government will place a lien on assets to protect the government’s interest.  This ensures that you could not sell an asset without the funds being directed to the IRS and then applied toward your tax bill. A lien will generally be issued only if you owe more than $10,000 in back taxes. If the IRS has filed a Tax Lien, your case is in collections and they are looking to take further action.

• Federal Tax Levy

The IRS sends a series of notices reminding you a balance is due, and there are quite a few.  In addition, they file a Tax Lien.  If you continue to ignore the situation, it will only get worse, in that the IRS will begin its collection process.  This would include levying your bank account, garnishing your wages and seizing property such as a home, car, etc.

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Should I File My Tax Return Even if I Cannot Pay?

Always file a tax return, even if you cannot pay the balance due.  If you help with filing our experienced tax professional are here to help.  A Failure to File Penalty will be assessed and currently, this penalty is 0.5% per month, with a maximum of 25% of your total tax bill.   Yes, you will also be hit with a Failure to Pay penalty, but why punish yourself twice?

Can I Use Credit to Make Payments on My IRS Tax Debt?

As most of us have a credit card, some taxpayers may find it’s easier to pay their tax bill on a credit card.  If a taxpayer has an American Express, Discover, Mastercard or Visa, there are options to pay via www.irs.gov/payments  There are three processors used when making these payments and these companies will charge anywhere from 2% to 3.5% depending on which credit card and processor you choose.

While this may pay your tax debt in full, it’s important to remember the credit card company may charge you a fee for using this service.  If you do end up paying additional fees, be sure to keep track.  The IRS will allow taxpayers to claim these fees on their tax return as a miscellaneous itemized expense.

Remember, your credit card charges interest.  However, some taxpayers may find the interest rate on their credit card is lower versus a payment arrangement with the IRS…and possibly less stressful as your tax debt will have been paid in full!

What If I Do not Have Enough Credit on My Card to Pay My Tax Bill?

If your tax bill is more than you have available on your credit card, there are options. The IRS does have payment arrangement available for a variety of different tax situations. It’s best to contact a tax professional who can then help you choose the best agreement available to you.

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Will the IRS Work with Me on A Payment Arrangement?

In short, yes, the IRS wants to work with taxpayers versus going after them in a levy situation. The key is knowing which option is best for your specific circumstances.  If you owe $50,000 or less, there are a few options available.

First, you need to know what amount is left in your bank account every month after paying all your necessary expenses, this is called your disposable income.  By necessary, this means, food, housing and utilities, car payment, insurance, health insurance, etc. Necessary does not mean going to the movies, or eating out excessively, cable or Amazon purchases.

Once you know your disposable income amount, you can then work to find what options are available.  If you can pay your tax debt in five years or less by making equal monthly payments, you may not need to provide any financial information to the IRS.  However, if you are not able to pay your tax debt in this time frame, you will need to complete financial form 433-F and gather documents to support this financial.  These documents include bank statements, paystubs, proof of car payments, etc.  Once this form is complete and your documents ready, you will need to present your case to the IRS and hope they agree with the same amount you report.  In this case, it is best to contact a tax resolution specialist as by giving away too much information could be detrimental to your case and you could end up paying more than is necessary.

If the IRS accepts your Installment Agreement, a formal acceptance letter will be sent to your address on record within seven to ten business days.  This letter should be kept in a secure location where you can easily access, if necessary.  For example, if you are looking to refinance your home or apply for other credit, you will need this acceptance letter to prove you have made arrangements to resolve your tax debt, as most likely, a Tax Lien has been filed.

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Once your agreement has been accepted, there are a few different ways to pay your agreement.  Here are the options we prefer for our clients:

• Direct Debit – Form 433-D

Using this payment method can take a lot of stress out of remembering to pay the IRS.  By using this form, you can agree to allow the IRS to deduct your monthly agreement from your bank account.  In addition, by choosing this option, if a Tax Lien has not yet been filed, most times the IRS will not file a Tax Lien if you choose this option.  Additionally, this option allows for you to have a Tax Lien withdrawn upon completion of three successful payments on a tax debt owed of $25,000 or less.

The important thing is to be sure you have the funds available in this account each month for withdraw.  If a payment is missed, it could default your agreement.  More than three defaults and the IRS are MUCH less likely to grant you another agreement.

• Direct Payroll Deduction – Form 2159

This is another option if you prefer not to give your bank account information to the IRS unnecessarily. This option asks your employer to remit the funds to the IRS each month my deducting from your paycheck.

Before choosing this option, make sure this passes with your employer as in some cases employers are not comfortable with tax debt.

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If you owe more than $50,000 in tax debt, there are a few options available.  In these cases, we strongly advise you to contact a tax resolution specialist as taxpayers can really get burned with this much tax debt.  Such as, are you eligible for a penalty abatement? Do you qualify for an Expanded Installment Agreement? How much time is left on your Collection Statute End Dates and should you apply for an Offer in Compromise?

A tax resolution specialist will complete a full financial analysis of your income and expenses to determine which resolution option is best for you, not only financially, but to ensure you do not face severe penalties or end up paying more than you should.

IRS Business Payment Plan

If your company is struggling financially, there is an option for those who owe less than $25,000.  This is called an In-Business Trust Fund Express Installment Agreement.  This agreement allows businesses to pay the debt over 24 months.  This agreement can be applied for either online or over the phone.

IRS Installment Agreement Fees

If choose the Installment Agreement option to pay your tax debt, it’s important to know there are user fees the IRS charges to set up such agreements.  The fee amount depends on which option you choose, or for which are eligible.

The fees would apply to anyone who entered into an installment agreement in person, by mail, over the phone, or by filing a Form 9465.

The following information was obtained from the IRS website via Form 9465 Instructions.

If you apply for an agreement online at www.IRS.gov

Direct Debit Option                $31

Other method of payment       $149

If you apply for an agreement over the phone or by mail

            Direct Debit Option                $107

            Other method of payment       $225

If you request a payroll deduction agreement using Form 2159, user fee is $225

If you are low income, you could qualify for a reduced user fee of $43. The IRS will not “offer” you this option, so you must complete Form 13844 to request a reduced fee.

These fees will be deducted from your first payment and are only due one time for each agreement.  If your first payment is less than the user fee, your first payment must be at least that amount.

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Would the IRS Refuse a Payment Agreement?

In short, yes. Here are the three reasons the IRS may reject an Installment Agreement:

• Unnecessary Living Expenses

The IRS uses a formula called National Standards. If the IRS deems your living expenses to be above this amount or feel they are extravagant, they could reject your proposed Installment Agreement amount, but propose a new amount which, yes, would be much higher.  For example, if you live above your means and have heavy credit card debt, they will only allow a certain amount per month; if you pay more than that, the expense would be disallowed. Same is said for housing as a certain amount is allowed per month.  If you are over that amount, typically they will allow you one year to reduce the amount and then your agreement would increase after one year.

• Your Collection Information Statement is Incorrect

If you neglect to provide information on your financial statement, the IRS could consider this fraud and once they believe you are not being truthful, it makes requesting an agreement that much more difficult.  When you request an agreement, the IRS will place you on hold to review the information you have provided.  However, when you are on hold, they are reviewing your past tax returns, county records, wage and income information that has been reported to the IRS, etc. If they believe you are hiding an asset, that is not good for you or your request for an agreement.

• You’ve Defaulted on a Previous Installment Agreement

If you have already defaulted on a prior payment plan for whatever reason, the IRS may be hesitant to accept your new proposal.  Typically, the default amount is three times.

If your Installment Agreement is rejected, you can apply again.  It’s important to note, the IRS has made notes in your file of previous requests, so being honest in the first place is a great place to start.  If you do have a rejected agreement, it is best to contact a tax resolution specialist as they will ensure a successful negotiation and know how to move forward productively.

I Cannot Afford to Pay the IRS; What Now?

If you absolutely cannot pay the IRS as you are struggling to pay your necessary expenses, it is time to contact a tax resolution specialist.  They will determine if an Offer in Compromise is an option or if a Currently Not Collectible band aid request is best.  There are a lot of factors to consider with each of these options, so it’s best to contact a professional.

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Would the IRS Cancel My Installment Agreement?

There are cases where the IRS could cancel your Installment Agreement once already in place.  As you both made an agreement, there are certain terms you agreed to when you requested a payment arrangement.  Not following those guidelines could cause the IRS to cancel the agreement.  Here are the three main reasons this could happen:

• Did You Miss a Payment?

Did you forget to make a payment? Or were you on a Direct Debit and forgot to have the funds available in your account?  If so, the IRS does allow 30 days for you to correct this mistake.  After 30 days, the IRS will send you a CP523, Notice to Default Agreement, which gives you another 30 days to correct the mistake.  However, the sooner you can ensure a payment is in the system, the better!

• Did You Forget to File and/or Pay Your Taxes Once on This Agreement?

You agreed to remain in compliance, meaning filing and paying your taxes on time.  The IRS will continue to watch your case and failure to file and pay will cause your agreement to go into default.

• Did you Omit or Forget to Provide Information on Your Financial?

If the IRS discovers you’ve knowingly provided incomplete or inaccurate information as part of the proposed agreement, they will revoke your installment agreement post haste!!

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Call us at 800-829-7483