Requesting an Installment Agreement: When & What Type
Should you request an IRS installment agreement? When requesting an installment agreement, which one is best? If you have questions like that, here’s what you need to know.
When to Consider an Installment Agreement
There are three common situations where an installment agreement can be appropriate:
- You can’t pay your taxes all at once. You can afford to make monthly payments
- Your Offer in Compromise was rejected.
- You can’t get a lower interest loan to cover your taxes.
If you request an installment agreement, you need to propose a monthly payment. However, your payment also has to cover your interest and penalties as well as part of the principal balance. If it doesn’t, the taxes owed will just get larger.
Generally, if you are on an installment agreement, the IRS will not seize your assets. However, there are a few rare exceptions. For example, if you sell your home, the IRS may require you to use the proceeds to cover your taxes. However, this usually only comes into play if the agency has filed a notice of federal tax lien against you.
Requesting an Installment Agreement (IA):
Depending on your financial situation, and your total tax balance, there are four ways to request an installment agreement from the IRS.
- You can use the online IRS payment agreement application if you are an individual who owes $50,000 or less. If you are a business that owes $25,000 or less, you can use it as well.
- Call the IRS at 1-800-829-1040
- Mail form 9465, Installment Agreement Request to the IRS
- Have a licensed tax professional (EA, Tax Attorney, CPA) negotiate with the IRS on your behalf
You can take these steps to set up a new installment agreement on your tax debt. Note that if you already have an installment agreement and you incur new tax debt, you can also use these steps to request to have the IRS add the new tax debt to your existing agreement. However, there is no guarantee that the IRS will let you add new debt to an existing agreement, and the IRS will not let you have multiple installment agreements at the same time.
Types of Installment Agreements
1. Guaranteed Installment Agreements are the easiest plans to obtain. If you meet the criteria, you are accepted. You must owe $10,000 or less. You must be able to pay the balance plus interest and penalties within three years or by the CSED if sooner. Only individuals qualify.
2. Streamlined Installment Agreements (SIA) are for individuals who owe $50,000 or less or for businesses that owe $25,000 or less in assessed taxes. If a business is still operating, it can only set up an SIA on income taxes. If it is no longer operating, it can set up payments on payroll and trust fund taxes. Sole proprietors and individuals can take up to 72 months to pay, but most businesses are granted just 24 months. T
3. Non-Streamline Installment Agreements are for individuals who owe over $50,000. You can take up to the collection statute expiration date to make payments, meaning that you can get up to 10 years from the date of assessment to pay off the tax debt. The IRS will issue a federal tax lien when you set up a non-streamline agreement.
4. Financially Verified Installment Agreements are for individuals who do not qualify for an SIA. To qualify for this type of payment plan, you must submit a financial disclosure showing your income, assets, liabilities, and expenses. This applies to people who owe more than $250,000. However, if a revenue officer is assigned to your case or you have a history of default, you may need to complete a collection information statement if you owe less than that threshold. This is a paperwork-heavy plan that usually requires the help of a licensed professional.
5. Partial Payment Installment Agreements (PPIA) are when the IRS agrees to smaller monthly payments than with a normal agreement. Then, when the collection statute expiration date comes, the IRS waives the remaining balance. This settlement technique is easier to obtain than an Offer in Compromise (OIC). As a result, a PPIA is a feasible alternative to an OIC rejection letter. However, the IRS reviews your financial situation periodically, and if your finances improve, you may need to make larger payments.
6. Direct Debit IRS Installment Agreements (DDIA) are agreements where monthly payments are taken out of your bank account. A streamlined, non-streamlined, and financially verified agreement may all fall into this category. With a streamline installment agreement, agreeing to a direct debit can help you avoid a tax lien if you owe over $25,000. If you owe over $50,000, a DDIA usually doesn't help you avoid a tax lien, but it makes it easier to stay on top of your monthly payments.
How to Make Changes to Your Installment Agreement
Once your installment agreement is set up, you can request basic changes such as the payment date or your direct debit account details through the IRS's online payment agreement tool. However, with some changes, the IRS may request additional paperwork, and sometimes, you may need to speak directly with an IRS employee. If you can no longer afford your payments or need longer to pay off the balance, be proactive about contacting the IRS. Generally, as long as you reach out first, you will be able to come to a satisfactory arangement. If not, the agency may put your payment plan into default and go after you to collect the balance.
Disclaimer: The content on this website is for educational purposes only and does not serve as legal or tax advice. For specific advice regarding your tax situation, contact a licensed tax professional or tax attorney.