In my last post I provided some general information about the IRS collection process. I explained how people can find themselves in collections, the methods for paying your tax debt, and a couple of special services available to taxpayers. Over the course of the next couple of posts I’ll take a look at the options available if you can’t currently pay the full amount of tax due.
Installment Agreement – Similar to A Bank Loan
The first option is the Installment Agreement, or payment plan. As the name implies, the IRS will allow most taxpayers to pay the balance due over time. There is a setup fee for plans extending beyond 120 days, which can potentially be waived for some low-income taxpayers.
The good news about installment agreements is that some people are guaranteed to be accepted! Eligibility for this includes:
- The amount of tax due is less than $10,000.
- You (and your spouse if married) have filed all tax returns and paid all taxes due in a timely manner over the last five years, and have not during that time entered into an installment agreement for income taxes.
- You agree to pay the full amount due within three years, and to timely file all tax returns while the agreement is in effect.
- Currently you are unable to pay the entire amount due.
Short-term Payment Plan – Online Application
Taxpayers owing less than $100,000 in combined taxes, penalties, and interest, and can pay the full amount of tax due within 120 days can apply online for a Short-term Payment Plan. Form 9465 (the official Installment Agreement Request form) isn’t necessary with this option. Instead, the online application is submitted. Additionally, these taxpayers will not be charged a setup fee.
With this plan, all the taxpayer needs to do is pay the full amount due within 120 days from acceptance. Any payment method is acceptable, and the timing of payment is entirely up to the taxpayer. Bottom line, entire amount due paid within 120 days. Just remember, penalties and interest continue to accrue until the full balance is paid.
Long-term Payment Plan – Online Application
Similarly, an online application is available if you owe less than $50,000 and all tax returns have been filed. Under this Long-term Payment Plan, as with the short-term plan, Form 9465 isn’t required and no personal financial information needs to be divulged. There will be a setup fee charged, and the amount will depend upon whether you agree to automatic withdrawals. However, automatic withdrawals are required if you owe more than $25,000 in total.
The maximum term for long-term payment plans is 72 months or to the CSED, whichever is shorter. CSED stands for Collection Statute Expiration Date; this is the deadline imposed on the IRS by the Internal Revenue Code for collecting a tax. It’s calculated by adding 10 years to the date the tax was assessed. This is usually the date the tax return was due.
Long-term Payment Plan – Regular Application
The other form of long-term payment plan requires Form 9465. Taxpayers will use this method when they owe more than $50,000 in total. Form 433-F is also required, which is the Collection Information Statement. This form provides the IRS with your personal financial information. You’ll disclose your assets, liabilities, income, and expenses. Be aware that when you sign this form you are attesting to its accuracy under penalty of perjury. As with the online long-term payment plan, there is a setup fee involved and the maximum amount of time to pay is the same.
Form 433-F is very detailed. And I’ve come to learn that completing it in such a way as to get IRS approval is an art form (no, I’m not saying you should lie). So please, seek out a tax professional to assist you if this is the route you need to take.
So far, I’ve discussed payment options when you can’t pay the full amount due right now, but eventually you can. Next time we’ll look at options involving paying only part of the balance you owe, or nothing at all. Until then, if you want to discuss your particular situation, feel free to contact me. You can call me at (317) 804-1174 or send an email to firstname.lastname@example.org.