Can You Have Two IRS Installment Agreements?

The Internal Revenue Service does not allow individuals to have multiple payment plans. However, in some cases, you may be able to add new tax debt to an existing payment plan. This guide explains the rules around multiple payment plans, and then it looks at what to do if you incur new tax debt when you have an existing payment plan. 

IRS Rules About Multiple Payment Plans

The IRS doesn't let people set up multiple payment plans. As an individual, you can only have a single payment plan on your delinquent taxes. Similarly, a corporation can only have a single payment plan. In other words, a single entity may only have one IRS payment plan. 

Usually, however, this question comes up when someone is making payments on an installment plan, and then incurs new tax debt. In this case, you cannot set up another payment plan for the new tax debt. But you can roll the new debt into your existing payment plan. 

Individual Vs. Business Payment Plans

As noted above, a single entity can only have a single IRS payment plan. Unfortunately, this can get confusing due to the unique ways that businesses are classified under tax laws. Let's look at a few different situations.

Sole Proprietorships

Say, for example, that you own a sole proprietorship business, and you file taxes on a Schedule C with your Individual Income Tax Return. In this case, you and the business are the same entity. You cannot set up a separate payment plan for your business and yourself. Instead, you will set up an individual payment plan, and that will also include taxes owed by your business including income and payroll taxes. 

Partnerships

The same basic rules apply if you own a partnership. With this type of business, you file taxes on a standalone partnership return called a 1065 form, but the income noted on that return flows to your Individual Income Tax Return. Thus, if you cannot pay the taxes due on your income tax return, you will set up a payment plan that covers your personal income tax, including the tax attributed to your partnership income. 

Additionally, if your partnership owes payroll taxes, you may be able to roll those taxes into a payment plan that also includes your individual income tax return. When you apply for the installment agreement, you'll let the IRS know that you're paying both 941 and 1040 taxes.

Corporations

Now, imagine that your business is a corporation. In that case, you and the business may have separate payment plans. Say that you filed your 1040 Individual Income Tax Return, your corporation filed its 1020 Corporate Income Tax Return, and both returns showed a balance due. 

In this situation, you and your corporation would need to contact the IRS separately and set up two different payment plans. However, if the corporation owed payroll taxes in addition to corporate income tax, it may be able to roll both of those taxes into the same payment plan. 

Types of Installment Plans

An installment plan is when the IRS lets you make monthly payments on your tax debt. Depending on the age of the tax debt and your budget, you may qualify for a range of different options, including the following:

• Guaranteed payment plan — If you owe less than $10,000, have a positive history with the IRS, and can pay off the bill within three years (or by the collection expiration date if earlier), you are guaranteed to get a payment plan approved. 
• Streamlined payment plan — Streamlined plans also have high approval rates, and if you owe under $50,000 and can pay off the debt within six years, you can easily set up the payments online. Generally, you don't need to submit many financial details, but if you owe over $250,000 or if you're working with a revenue officer, you may need to complete a financial disclosure. 
• Non-streamline installment agreement — If you need more than six years to pay, this plan lets you spread the payments out over an eight-year time frame (up to the collection statute expiration date).
• In-business trust fund express installment agreement - If you owe payroll taxes, you can set up an express plan to pay them off over two years. Typically, the IRS will only give businesses more than two years to pay if they are no longer in operation. 

Although these plans have different application processes, they all share one core element — their terms say that you will go into default if you incur new tax debt. However, despite this tenant, the IRS is often willing to roll new tax debt into existing installment plans. 

What If You Incur Tax Debt While on a Payment Plan

If you know that you're going to incur new tax debt, contact the IRS as soon as possible. Being proactive will help you avoid going into default. Often, you can attach Form 9465 to your tax return and simply request a payment plan when you file. 

The worst thing to do is to file your taxes without reaching out to the IRS about the new debt. If you file and don't pay, the IRS may not notice right away. But, eventually, the agency will assess the taxes against you, send a demand for payment, and put your payment plan into default. If that happens, your tax debt is due in full immediately, and if you don't pay, the IRS can garnish your wages, take your assets, or even seize your home. 

In most cases, as long as you make your request proactively, the IRS will let you add new debt to your payment plan or make other changes to your agreement. However, it's not guaranteed. And, usually, you can only do this once. The IRS is serious about tax compliance and repeated failure to follow the terms of your installment agreement can cause problems. 

What If You Can't Afford Payments on Your New Tax Debt?

Sometimes, people incur new tax debt, and they legitimately can't afford to pay it. What if you're just barely able to afford your current installment agreement? What if you cannot afford to make payments on a higher debt? Then, you have a few different options:

• Currently Not Collectible — If you prove that you cannot afford to pay anything right now, the IRS will mark your account as currently not collectible. This status stops collection actions (such as garnishments or asset seizures), but the IRS will review your account in the future to see if your finances improve. 
• Partial Payment Installment Agreement — If you can afford to pay a bit per month but not enough to pay off the tax debt by the deadlines on the traditional payment plans, you may want to look into a Partial Payment Installment Agreement (PPIA). With a PPIA, you pay as much as you can afford every month until the collection statute expiration date. Then, at that time, the IRs waive the rest of the debt. The IRS will also revisit your finances periodically to ensure that you qualify. 
• Offer in Compromise — An offer in compromise is similar to a PPIA, but instead of making monthly payments to the CSED, you make a lump sum payment. Then, the IRS waives the rest of the debt. The advantage of an OIC over a PPIA is that the IRS cannot rescind the agreement if your finances improve, but the agency can rescind your agreement if you default on the terms which include not accruing new tax debt. 

Again, all of these programs have compliance requirements. Even if you cannot afford to pay, the IRS may deny your application if you have a history of being incompliant. To be on the safe side, work with a tax pro to make arrangements on your tax debt, and try to be as proactive as possible when dealing with the IRS. 

How to Avoid Owing Taxes

Worried about getting to tax season and facing a bill? Then, being proactive is key. If you don't want to owe when you file, you need to ensure that you pay enough tax throughout the year. Keep these tips in mind:

1. File out an accurate W4 if you have an employer. Make sure that you choose the correct filing status and pay close attention to the parts of the form that guide you through calculations related to second jobs or spousal income. 
2. Pay estimated taxes if you are self-employed or a corporation. The IRS requires you to pay estimated quarterly taxes that are at least 90% of your current tax bill or more than you paid the previous year. If you are earning about the same as last year, send in the quarterly payments that are one-fourth of your prior year's tax bill. Your accountant and most tax prep software can help you with this calculation. If you're earning more this year than last, work with a tax pro to calculate your quarterly estimated payments. 
3. Set aside part of your earnings if you're a freelancer — Whether you run a small unincorporated business or drive an Uber, the IRS considers you as self-employed. That means you pay self-employment tax at a rate of 15.3% plus income tax on your earnings. To ensure you have the funds you need to pay your tax bill, set aside approximately 25% of your earnings when you get paid. Note that people in higher tax brackets may need to set aside more. 
4. Reconsider your budget if you cannot afford to pay taxes — If you consistently come up short every year on your tax bill, you may need to adjust your budget. Look for creative ways to spend less on housing, food, transportation, or other essentials. Or if you're dealing with business taxes find ways to boost revenue and cut expenses.
5. Work with an accountant on tax planning — If you're self-employed, run a business, have a lot of investments, or are dealing with other unique tax situations, consider talking to an accountant about tax planning. The complexity of the tax code creates a lot of unique ways to structure your business if you want to be as tax-efficient as possible. 

FAQs About Multiple IRS Payment Plans

Can you set up a payment plan for two years of taxes?

Yes, IRS payment plans can include taxes from several different years. If you owe back taxes right now and are getting ready to file a new return that you also cannot afford to pay, you should consider filing the return first. Then, you can apply for a payment plan for all of the years together. 

Can you set up a single payment plan on payroll and income taxes? 

If the same entity owes both income and payroll taxes, you can apply to pay those taxes on the same payment plan. Note, however, that if your business is still in operation, the IRS may require a shorter payment timeframe for the payroll taxes, but you may qualify for a longer timeframe on your individual income taxes. A tax pro can help you figure out the best option.

Can I set up a single payment plan for myself and my corporation? 

If you owe taxes as an individual and your business owes taxes as a corporation, you will need two separate payment plans. Also, note that the trust fund recovery penalty may be assessed to you as an individual. In that case, you would need an individual payment plan for that, even if you were setting up a corporate payment plan for the unpaid payroll taxes. 

Getting Help With IRS Payment Plans

If you're stressed out about unpaid taxes, be aware that you don't have to navigate this situation on your own. A tax pro can help you find the very best option for your situation. They can also guide you if you incur new tax debt while making payments on an installment agreement. 

Additionally, a tax pro can help you with tax planning so that you can avoid this situation in the future. If you have additional questions about installment plans, feel free to explore the rest of the site. 

Ready to get help now? Then, it's time to use TaxCure to find a local professional. 

Why You Should Hire a Local Specialist

Unfortunately, the tax debt resolution industry is dominated by shady companies that overcharge and underserve. Often, this leads people to set up payment plans they cannot afford. In fact, an independent analysis of IRS payment plans indicates that payment plans have extremely high rates of default, and about a quarter of people who set up payment plans could have qualified for another option. 

When you work with a local tax attorney, CPA, or enrolled agent, they will review your situation closely and get to understand your goals. Then, they'll help you set up a payment plan or another resolution that takes your needs and budget into consideration. 

Finally, they'll help you avoid getting into tax debt in the future. A local pro can also be invaluable if you're dealing with state tax problems on top of IRS tax debt. Don't wait, use TaxCure to find help today.