Are you struggling with tax debt that has caused your financial situation to become difficult? You may be considering payment options such as an Installment Agreement but are unsure if there is a limit on how many agreements you can enter into with the IRS. Anxiety is justifiable when it comes to processing tax payments since the repercussions of doing so incorrectly can be severe for taxpayers.
In this blog post, we will discuss what an Installment Agreement is and explore whether it’s possible for a taxpayer to have multiple Installment Agreements in order to manage their tax debt.
What Is An Installment Agreement With The IRS?
An installment agreement is a payment plan offered by the Internal Revenue Service (IRS) that allows taxpayers to pay off their tax debt over a specified period of time, usually in monthly installments. This type of agreement is designed for individuals who are unable to pay their tax debt in full and need more time to settle the amount owed.
To be eligible for an installment agreement, taxpayers must meet certain criteria. These include having filed all required tax returns, not having any other outstanding tax debts, and not having any open bankruptcy proceedings. Further, the IRS must doubt that a taxpayer can pay off their debt within an acceptable time frame.
To apply for an installment agreement, taxpayers must complete Form 9465, Installment Agreement Request, and submit it to the IRS. The form can be submitted online or by mail. The IRS will then review the taxpayer’s financial information and determine the amount they can afford to pay each month, taking into account their income, expenses, and other financial obligations.
Once the payment plan is approved, the taxpayer must make regular monthly payments until the debt is paid in full.
How Does The IRS Installment Agreement Work?
Tax debt is an extreme concern, and the IRS takes its obligation to gather taxes seriously; it has numerous strategies in place to make sure that it gets priority over other creditors when seeking payment for what is owed.
As a taxpayer, your legal and civic duty is to promptly submit your taxes; those who fail to comply may face financial penalties and accumulating interest. Moreover, willfully evading tax payments can be considered a criminal offense.
While you can’t possess two installment agreements with the IRS, proposing a payment plan allows you to dodge additional collection actions and pay off your debt. Fortunately, there are two ways of entering into an arrangement with the Internal Revenue Service:
Short-term Payment Plan:
Any payment agreement that requires the entire balance to be paid within six months, usually with one or several lump sum payments.
Long-term Payment Plan:
A payment plan that allows for monthly installment payments over a period exceeding 180 days until the debt is either paid off.
Setting up an installment agreement is simple and stress-free, given you can do it either online, via mail, or by phone. You may also opt for a personal visit if that works best for you. For the most part, opting to set up your installment agreement electronically will be much more cost-effective than other means of communication; however short-term payment plans are only available through postal mail or by telephone at this time.
What Are The Four Types Of IRS Installment Agreements?
The IRS offers four types of installment agreements for taxpayers to choose from:
Guaranteed Installment Agreement
A guaranteed agreement is an option only available to taxpayers who owe $10,000 or less in taxes. These agreements are approved quickly and guarantee that the payment plan will be accepted, provided the taxpayer has filed all of their returns and meets all other qualifications.
Streamlined Installment Agreement
This type of agreement is available to taxpayers who owe more than $10,000 but less than $50,000. The payment terms are more flexible than with a guaranteed agreement. In order to be eligible, the individual must have the financial capacity to settle their outstanding balance plus any added penalties and interest within 6 years.
Partial Payment Installment Agreement
These agreements allow taxpayers to pay less than the full balance of their tax debt over time. In order to qualify for a partial payment agreement, the taxpayer’s total debt must be less than $50,000 and the taxpayer must agree to pay their debt in full within five years.
Full Payment Installment Agreement
When taxpayers fail to repay their installment debt within 72 months, they must get in touch with the IRS and arrange an alternative payment plan. The Partial Payment Installment Agreement is a great option as it permits you to make monthly payments that are tailored according to your essential living expenses.
No matter which type of installment agreement you choose, it is important to remember that all debts must still be paid off in full according to Ideal Tax. The IRS will charge interest and late payment penalties on any unpaid balance, so making timely payments every month is important.
Additionally, if you are unable to meet your payment obligations, then the IRS may terminate your agreement and continue its collection activities. Therefore, picking a payment plan that you can realistically adhere to is essential.
Consult With A Tax Expert
It is important to seek the advice of a tax professional. With their help, you can ensure that your payments are set up correctly and any other stipulations are met appropriately. This could prevent disputes down the line and make sure your debt is taken care of in the most cost-effective way possible.
By consulting with a tax expert, you can also make sure that your installment agreement is affordable and fits within your budget. This will help ensure that you are able to meet the payment obligations set in place and ultimately resolve any outstanding balance owed to the IRS. Companies like Ideal tax provide free tax consultation.
The Bottom Line:
An IRS installment agreement is designed to allow taxpayers to resolve their current tax obligations by setting up a payment plan. Once an agreement has been accepted, it is the best way for taxpayers to address their IRS debt. However, unfortunately, it is not possible to have more than one installment agreement with the IRS at any given time.
It’s important to thoroughly understand all of your options when deciding upon an agreement, so seeking guidance from a knowledgeable tax professional can be beneficial. They will be able to look at your individual circumstances and recommend the taxing strategy that’s right for you.
Related article: 5 Ways to Prepare for Your Businesses Yearly Taxes
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