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28 Feb 2023, 14:57 GMT+10
It's that time of year again: time to pay the piper, as they say, and give back to old Uncle Sam. Tax time conjures mixed feelings for a lot of Americans, with some excited about the possibility of return and others worried about making ends meet.
If you're in the latter camp, it can be helpful to learn about the IRS installment agreement plan. If you have personal tax debt that you can't afford to pay all at once, this plan can help you to make the task at hand a bit easier.
It can help those struggling to buy a little more time and get a little more leniency when it comes to paying what they owe. What do you need to know about this kind of IRS payment plan? Read on and we'll walk you through the basics.
What is an IRS Installment Agreement?
If you need help with back taxes, you're certainly not alone. Hundreds of thousands of people have trouble affording their tax payments each year. In order to meet this problem, the Internal Revenue Service created installment plans.
An IRS Installment Agreement is a payment plan that allows taxpayers to pay their tax debts over time.
Taxpayers who owe less than $50,000 in taxes, penalties, and interest are eligible to set up an installment agreement. This is an alternative to paying the full amount due in a single payment or through a short-term extension.
Under an IRS Installment Agreement, taxpayers agree to make regular payments over an agreed-upon period, typically between three and six years.
The payments must be made on time and in full to avoid defaulting on the agreement. The amount of each payment depends on the amount of the tax debt, the length of the agreement, and the taxpayer's ability to pay.
Types of Installment Plans
The IRS has several types of installment agreements available, each with its own eligibility requirements and payment terms.
The most common types of installment agreements include:
Guaranteed Installment Agreement: This type of agreement is available to taxpayers who owe less than $10,000 and who have filed all required tax returns on time for the past five years. Under this agreement, the taxpayer can pay off their tax debt over a period of up to three years.
Streamlined Installment Agreement: This type of agreement is available to taxpayers who owe less than $50,000 and who can pay off their tax debt in full within six years or less. The taxpayer must agree to make monthly payments and to keep up with all future tax obligations.
Non-Streamlined Installment Agreement: This type of agreement is available to taxpayers who owe more than $50,000 or who need more than six years to pay off their tax debt. The taxpayer must provide financial information to the IRS, including income, expenses, and assets, and negotiate payment terms based on their ability to pay.
How to Set Up an IRS Installment Agreement
There are a few ways to set up an IRS Installment Agreement. The easiest way is to use the Online Payment Agreement (OPA) tool on the IRS website. This tool allows taxpayers to set up a payment plan in just a few minutes. To use the OPA tool, taxpayers will need:
Taxpayers who owe more than $50,000 in taxes, penalties, and interest or who need a longer repayment period must submit a Form 9465, Installment Agreement Request, to the IRS.
This form requires taxpayers to provide detailed financial information, including their income, expenses, and assets.
What to Consider Before Setting Up an IRS Installment Agreement
Before setting up an IRS Installment Agreement, taxpayers should consider the following:
Keeping these concerns in mind can help the average taxpayer from finding themselves in a worse financial position after taking on this kind of plan. You should completely understand what you're agreeing to before signing any paperwork with the IRS.
Managing Your Personal Tax Debt
An IRS Installment Agreement can be a useful tool for taxpayers who are unable to pay their tax debts in full.
However, it's important to consider the interest, penalties, fees, and impact on credit score before setting up an agreement. Taxpayers should also make every effort to make payments on time and in full to avoid defaulting on the agreement.
Have more questions about managing your taxes? More accounting needs you need help with? Keep scrolling our blog for more.Get a daily dose of Mediterranean Times news through our daily email, its complimentary and keeps you fully up to date with world and business news as well.
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