IRS Direct Debit Installment Agreement Benefits & Details
Simply put, an IRS Direct Debit Installment Agreement (DDIA) is when you make payments to the IRS directly from your bank account. You can set up a direct debit payment method with multiple Installment Agreements. That includes Guaranteed, Streamlined, Non-streamlined, and Verified Financial Installment Agreements.
You can set up a direct debit online with the IRS’s Online Payment Agreement application. You can also use Form 9465 (Installment Agreement Request), just include your routing and account number in Section 13 of that form. Direct Debit Installment Agreements offer more pros than cons.
Direct Debit Installment Agreement Benefits
In most cases, paying by direct debit helps you avoid defaulting or incurring penalties. Here are a few of the other benefits
- Setting up a Direct Debit Installment Agreement costs $31 if set up through the IRS Online Payment Agreement. Otherwise, the setup fee is $130 (if not low income).
- If you apply through the mail or over the phone, the fee is just $107 if you set up direct debit and $225 if you don't.
- Direct debit helps you avoid late payments.
- You are not required to mail a check or pay for postage each month.
- You don’t have to worry about lost mail or misplaced payments.
- You avoid fees associated with credit card payments.
- Generally, when you agree to direct debit, and you owe less than $25,000, the IRS won't file a federal tax lien against you.
- If your business owes less than $25,000, you can qualify for the Streamlined Installment Agreement -- you only need to set up direct debit if you owe $10,000 or more.
IRS Direct Debit Installment Agreement Drawbacks
There can be a few drawbacks too. Namely, if you don’t have the funds in your account, you risk incurring overdraft or insufficient funds fees.
If you don't have a bank account, you can get around the requirement for direct debit by setting up an automatic payroll deduction. This requires you to file Form 2159. However, you should use this as a last resort. First, when you take this route, you reveal to your employer that you're behind on your taxes, and that can hurt your reputation. Additionally, many payroll departments aren't used to this form. As a result, they often confuse it with a non-voluntary garnishment.
This can be problematic if you want to pause the payments. With a payroll deduction agreement, you can voluntarily stop the payments at any time, and then, the IRS can pursue collection actions against you. A garnishment, in contrast, is not voluntary, and your payroll manager can't stop the payments based on your instructions.
In most cases, if you are serious about paying off your taxes, payroll deductions and direct debit offer more benefits than any other type of payment method for an installment plan.
Disclaimer: The content on this website is for educational purposes only and does not serve as legal or tax advice. For specific information regarding your tax situation, connect with a licensed tax professional or tax attorney.