If you are an individual taxpayer struggling to pay your income taxes in full, you can request for the IRS Installment Agreement that is applicable to your financial situation. Provided you meet certain requirements, you are legally entitled to a Guaranteed Installment Agreement. You read that right: the IRS is required to automatically accept your request for an installment payment plan if, as of the date, you enter into the agreement:
- The total amount of your liability (determined without interest, penalties, additions to the tax, and additional amounts) does not exceed $10,000
- You (and, if such liability relates to a joint return, your spouse) have not, during any of the preceding 5 taxable years:
- Failed to file any income tax returns
- Failed to pay any income taxes
- Entered into an installment agreement for payment of tax
- You pledge to fully pay the liability within 3 years, or by the Collection Statute Expiration Date (CSED), whichever comes first
- You agree to comply with tax laws for the duration of the agreement
It is important to note that under the Guaranteed Installment Agreement:
- Generally, the IRS will not file a federal tax lien against you for your outstanding taxes due.
- You will be charged a fee for the set up of the installment agreement.
- Even though you are reducing your liability through monthly payments, you are still paying your taxes late. Thus, interest and penalties will still continue to accrue until the balance is paid in full.
- Minimum monthly acceptable payment is computed by dividing the total amount of tax, accrued interest, and penalties by 36, and must allow for full payment by the CSED.
- If you miss any of the monthly payments, your agreement will default.
Tips on Applying for your IRS Installment Agreement Request
- For convenience, you may apply online, using the Online Payment Agreement Application (OPA). Alternatively, you may apply by phone, mail, or in person by submitting Form 9465 (Installment Agreement Request).
- Add a buffer when computing for your proposed minimum monthly fee. Make sure that the amount will allow you to fully pay all your debt (including interest and penalties) within 36 months or by CSED, whichever comes first. However, it is advisable to propose the maximum amount that you can pay each month, so that you can pay off your liabilities faster and avoid incurring more interest and penalties than necessary. If still unsure, you may divide your balance by 30 to come up with a monthly amount with sufficient wiggle room.
- The IRS allows you to select your own monthly installment date (should fall between the 1st and 28th date of each month). In doing so, consider your budget and the timing of your cash flows so you won’t miss any payments.
- The set up fee varies depending if you applied online or not, and if you will be paying through direct debit or not. Individuals with low income can apply for a reduced fee. Maximize the best option that is available to you.
Once your IRS Installment Agreement has been approved, be sure to manage your payment plan well to avoid default. Be timely with your payments and your tax filings, and contact the IRS if you foresee any changes to your existing agreement.