Iowa Department of Revenue Tax Payment Agreement
If you can't afford to pay your Iowa tax bill in full, you may be able to set up a payment plan with the Department of Revenue. To help you out, this guide explains how to set up payments on Iowa taxes. Then, it looks at what to expect when making monthly payments on your tax debt.
What Is an Iowa Tax Payment Agreement?
In Iowa, a payment agreement allows you to pay off your tax bill in monthly installments. You can take up to 36 months to pay off your tax liability. But your monthly payments must be at least $10.
For instance, if you owe $3600 in Iowa individual income tax, you could pay $100 per month for 36 months. That allows you to spread out the cost of your tax liability over time. Note, however, that this very simple example does not take interest into account.
How to Set Up a Payment Plan on Iowa Income Taxes
To set up a payment plan for an individual or corporate income tax, visit the PayDebt section of the Iowa Department of Revenue's website. You will see a list of payment plan conditions on the website. Review the rules and then select "I agree."
You will be prompted to enter your account number and zip code on the following page. Use the information from the last notice sent to you by the state. If the Iowa Department of Revenue mailed your latest notice to an incorrect address, make sure to use that zip code. This ensures the IA DOR matches you with the correct tax account. After you've created an account, you can change your address.
Once you've signed in, you can make a one-time payment, or you can request to set up a payment plan. Follow the prompts to set up a payment plan for your Iowa taxes. You can also use this process to set up a payment plan for many other types of debts you owe to the State of Iowa.
How to Set up a Payment Plan on Iowa Business Taxes
You can also set up a payment plan for many types of Iowa business taxes. As explained above, you should use the PayDebt site to request payments on corporate income tax. However, if you want to make payments on sales, use, fuel, or withholding tax, you need to get started on the main page for the Iowa Department of Revenue.
From this page, you can set up an online business account. Then, you can use your online account to file returns, make payments, or request payment plans. You can also message the Iowa Department of Revenue and ask for help as needed.
How to Make Payments on Iowa Back Taxes
You can make your payments by sending a check or money order to the following address:
Iowa Department of Revenue
PO Box 10471
Des Moines, IA 50306-0471
Alternatively, you can make payments online through direct debit or by credit or debit card. You can make one-time payments or set up recurring payments with these payment methods. The state will charge you a service fee if you use a credit or debit card to make the payment.
What Date Are Payments for Iowa Payment Plans Due?
When you request a payment plan, you get to choose which day you make payments. If you request to make your payments on the 29th, 30th, or 31st of the month, the IA DOR will assume that you mean the last day of the month. For instance, if you select the 31st, the payment will be due on the 30th for months that have 30 days and on the 28th for February.
Regardless of the date, the first payment may not come out of your account immediately if you select direct debit. Make sure the funds for the payment are in your account. The first payment may take a few days to process.
Additionally, if you need to cancel or delay a monthly payment, be sure to do so at least five days before your payment date. If not, you may not be able to make changes. Note that the IA DOR takes no responsibility for bank fees caused by direct debit payments that you could not cancel.
Interest on Iowa Payment Agreements
Interest will continue to accrue on your account while you are making monthly payments. Your payment plan will take the interest into account. But it's important to note that your final payment may be different than your other monthly payments depending on how much interest accrues on your account.
As of 2022, the Iowa Department of Revenue assesses interest at a rate of 0.4% on unpaid taxes. This rate is assessed every month. Over a year, you should expect to pay 4.8% in interest. Note that the interest amount is subject to change.
What to Expect When Making Payments on Iowa Back Taxes
When you're on a payment plan, the Iowa Department of Revenue will stop most collection actions against you. For instance, the state won't garnish your wages or seize your assets if you're actively making payments on an approved payment plan.
However, as explained below, the state can seize federal tax refunds, state tax refunds, and Iowa vendor payments when you're on a payment plan.
Setting up a payment plan does not stop you from appealing the tax liability. You can appeal even if you're making payments as long as you still have time in the appeals window. If the appeal successfully reduces the tax liability, you can apply for a refund of any overpayments that you made.
What Happens to Tax Refunds When You're on an Iowa Tax Payment Plan?
The IA DOR will take your state and federal tax refunds as well as any state vendor payments you earn. These amounts will be applied to your tax balance. They will help to reduce the tax debt, but they won't count as your monthly payment.
Here's a quick example. Imagine that you owe $10,000 to the Iowa Department of Revenue for old income taxes. You're paying $300 per month on your payment agreement. In March, you receive a $3,000 tax refund from the IRS. The Iowa Department of Revenue will keep this refund and apply it to your remaining balance. It will lower your bill to $7,000, but you will still need to make your monthly payments.
Note that this is a very simple example that does not consider interest or penalties.
Reasons Your Iowa Payment Plan May Go Into Default
If you incur a new tax liability that you cannot afford to pay, your Iowa payment plan will go into default. To give you an example, imagine that you are making payments on your 2020 Iowa personal income taxes. You file your 2021 tax return on time and pay the bill on time. Your payment plan continues to be in good standing.
However, you file your 2022 state tax return next year and can't afford to make the payment. At this point, your payment plan will go into default. The bill will be due in full, and the state can use collection actions against you.
What Happens If your Payment Plan Goes Into Default?
If your payment plan goes into default, the Iowa Department of Revenue has the right to start collecting your tax debt. The department may issue a lien against your assets, prevent you from licensing your vehicle, suspend your professional license, garnish your wages, and seize your bank account
To prevent this from happening, you must make all your monthly payments on time and in full. You also need to ensure that you don't incur any new state tax liabilities that you can't afford to pay.
What If My Full Tax Bill Doesn't Show on My Last Notice?
As explained above, you need your billing notice to set up a payment plan on your Iowa back taxes. But what if your latest notice doesn't show everything that you owe? In this case, you shouldn't set up a payment plan until you contact the Department of Revenue.
Contact the department directly and let them know that you owe more than the amount reflected on the bill. The rep should be able to find everything that you owe. This helps ensure that all your tax liabilities are included when you set up the payment plan.
How to Make Changes to Your Iowa Tax Payment Plan
If you want to make changes to your Iowa tax payment plan, you may not be able to do so online. Instead, you should call the number from your last bill. The rep will be able to help you through the changes. For instance, you should call the DOR if you want to increase your monthly payment or change your payment date.
What If You Can't Afford to Make Payments on Your Iowa Back Taxes?
Can't afford to make any payments on your Iowa back taxes? Then, you may need to explore other options. For instance, the Iowa Department of Revenue will sometimes settle taxes for less than you owe through the state's settlement program. This requires you to make a lump sum payment, but that can be easier than monthly payments for some taxpayers.
Get Help Applying for an Iowa Tax Payment Agreement
Applying for an Iowa tax payment agreement can be confusing but it may not be your only option if you owe Iowa state taxes. Luckily, you don't have to deal with this process on your own. You can get help from an Iowa tax pro.
When you contact a Certified Public Accountant (CPA), enrolled agent (EA), or tax attorney with experience in Iowa, they can answer your questions and can help you with obtaining a tax payment agreement with the state. They can also let you know if you might qualify for other tax resolution programs in Iowa.
Keep in mind that every state has different rules and programs for tax resolution. You need to work with a local pro to get the best results for your situation. In the past, it was hard to find someone who specialized in Iowa back taxes. But TaxCure has simplified the process. Simply, use our website to search for Iowa tax pros. You can even break down the search results based on your particular tax problem. Then, read about their experience and contact the tax pros who look the best to you.