Payment arrangement options are offered by the IRS for those who owe more in taxes than they can afford to pay immediately. The IRS, will pretty much always issue penalties and charge interest on taxes paid late, regardless of the reason. There are some special circumstances, though these are applied at the IRS’ discretion.
An ‘Online Payment Agreement’ can be applied for with the IRS in the event that you owe taxes and you have no other alternatives to pay your liability back. If you cannot access a bank loan or other financing options, you need to look into your options with the IRS.
Online Payment Agreements Explained
A payment agreement can be set up by individuals and businesses with overdue taxes. It can be done by filing Form 9465 (Installment Agreement Request) or by registering for any online payment agreement.
NOTE: You have to file your completed tax return prior to applying for a payment agreement.
There are certain criteria that must be fulfilled to apply for an online payment agreement. No more than $50,000 can be owed in combined income tax, penalties, and interest for individuals. Your business tax liability cannot be more than $25,000 in payroll taxes. Through the IRS.gov website, eligible taxpayers can apply for an online payment agreement.
Form 9465 can be used to request for an online payment agreement if you are an individual owing above $50,000 or a business owing above $25,000. A Collection Information Statement (Form 433-A, Form 433-B, or Form 433-F) can also be filed by taxpayers using Form 9465, that will assist the IRS to find out the best way to resolve your outstanding tax liability.
Types of Online Payment Agreements
An online payment agreement can be requested in two ways. Either an establishment of a monthly installment plan or, depending on the situation, a short-term extension of time to pay can be requested.
- Monthly Installment Plan
With this option, your entire tax balance does not need to be paid all at once but rather, can be paid in monthly installments. Requesting an installment plan means that you agree to pay your monthly bills in a timely manner. This option also entails an agreement between you and the IRS that you will fulfill all future tax obligations. This means that you must have enough tax withheld, or make estimated tax payments, so your tax liability in the future is entirely paid when you file any future tax returns.
Installment payments can be made via check, money order, credit card, direct debit, or payroll deduction. Upon receiving each monthly payment, you will get a notice from the IRS stating your remaining balance including the deadline and the amount you will have to pay in the next installment. If you have set up for payments to get automatically withdrawn from your bank account, the IRS will not issue you a notice; your bank statement acts as your record of payment.
Not making your bills on time, or filing a future tax return without paying your due balance, will result in you being delinquent of your agreement. In that case legal action will get taken by the IRS in order to collect your full tax debt like filing a ‘Notice of Federal Tax Lien’ or placing a tax levy on your assets. Hence Direct Debit agreement is the best option you can take if you want to avoid missing any payments.
Just a reminder that installment agreement and ‘Offer in Compromise’ are two separate things.
- Short-Term Payment Agreement
Owing less than $100,000 in taxes to the IRS might grant your eligibility for a short-term agreement according to which you are given up to 120 extra days to completely clear your taxes. The installment agreement setup fee will not need to be paid if your entire balance is cleared within 120 days as agreed. Call the IRS at 1-800-829-1040 or apply online through the IRS.gov website to request a short-term extension.
Set Up Fees
Approximately 30 days after your application is submitted, you will get notified by the IRS on the status of your request as to whether it was approved or denied including a bill for the setup fee. Whether you applied online or via mail, setting up a monthly installment agreement costs $120. The cost can be dropped to $52 if you choose to make your payments using Direct Debit.
A reduced setup fee of $43 is charged if your income is below a certain level and the IRS will let you know whether or not you are eligible for the reduced fee. Form 13844 (Application For Reduced User Fee For Installment Agreements) can be filed if you received no notifications about the reduced fee.
You are not required to pay a setup fee if you as a taxpayer are eligible for the short-term payment agreement in which you can pay in full in 120 days.
Refer to Instructions for Form 9465 (Installment Agreement Request) for additional information.
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