Author: Larry Weinstein, CPA
Source: articledashboard.com
So you find yourself with an IRS debt and you don't know how to pay it back.
Installment agreements are perhaps the most widely used method for paying past tax debts.
If you cannot afford to pay your tax liability in full, the IRS may enter into an installment agreement with you.
This will allow you to pay off your tax liability through monthly payments or installments. Installment agreements may pay all (full pay) or part (partial pay) of your past tax liability.
If you cannot pay the amount you owe within 60 months, you must file Form 433-A or 433-B. The IRS will analyze these forms and use the information to determine the amount you can pay.
The IRS has the discretion to decide on the payment amount and will usually, negotiate with you in food faith. The IRS will consider your financial situation and assets while negotiating with you. You will typically not be approved for an installment agreement if you have money or assets that IRS deems unnecessary to live on.
The IRS will usually inform you within 30 days whether or not your request has been accepted or denied or if any additional information is required to be submitted by you.
If the IRS approves your request, you will be required to pay a one time fee of $105.
Requirements for Receiving an Installment Agreement
? You must be current on all your tax returns.
? If self employed, you must be current on your quarterly estimated tax payments for the current year.
? If you have employees, you must be current on your payroll tax and Form 941 filings.
? You must make all installment payments on time.
? You must also file all tax returns and make tax payments including any estimated tax payments or Federal Tax Deposits during the term of the agreement on time.
Once you have been approved for an installment agreement, the interest and penalties continue to accrue on the unpaid portion of back tax liability throughout the duration of the installment agreement till you pay off your entire tax debt.
The interest is adjusted quarterly and combined with penalties, the rate is about 15% per year. In most cases, you could end up paying more than what you owed at the beginning. You will be charged interest and a late payment tax penalty by the IRS on the tax not paid by April 15th, even if your request to pay tax in installments is granted by the IRS.
Once you enter into an installment agreement, the IRS will suspend all collection efforts and will stop issuing wage garnishments, bank levies and notices. Depending on the circumstances, the IRS may file a Notice of Federal Tax Lien to protect its interest until you pay the liability in full.
