Details Regarding Michigan’s Installment Agreement
Taxpayers (individuals and businesses) who cannot pay Michigan income taxes in full may want to consider an installment agreement (IA). The Michigan Department of Treasury (DOT) offers installment agreements or payment plans. An installment agreement is simply a payment plan with the DOT that allows the taxpayer to make monthly payments on the taxes owed. However, taxpayers who pursue this option need to consider the interest and penalties that continue to accrue. Taxpayers who cannot pay in full should compare the installment agreement option costs with other alternatives. For example, personal loans, home-equity loans, and borrowing from friends and family. Taxpayers who have had a Michigan offer in compromise (OIC) rejected or who do not meet the OIC requirements may also want to consider an installment agreement.
Suspension of Enforced Collections
While the taxpayer actively has an installment agreement with the DOT, the DOT will suspend all enforced collection actions. However, if the state of Michigan has not already filed a tax lien at the time the taxpayer applies for the installment agreement, the DOT will file it with the acceptance of the installment agreement. Further, penalties and interest will continue to accrue. The DOT will also apply income tax refunds (offsets) or any credits to the taxpayer’s liability. If a taxpayer with an active installment agreement later submits an Offer in Compromise and the DOT confirms receipt, the taxpayer does not need to make installment agreement payments while the OIC is pending.
Installment Agreement Durations
The taxpayer (business or individual) needs to receive Form 168 – Intent to Assess, or Form 168 – Final Assessment from the CSB (Collection Services Bureau), to meet one of the eligibility standards for an Installment Agreement. Moreover, it is advised that the taxpayer file all unfiled tax returns to ensure all tax liabilities are included within the installment agreement. Lastly, if a taxpayer still has an open bankruptcy, the DOT cannot set up an installment agreement.
24-Month Installment Agreements
The DOT will accept all installment agreement applications without further financial inquiry where the taxpayer will pay the taxes owed in full within 24 months. In other words, the taxpayer does not need to substantiate expenses and income. Unlike the streamlined IRS installment agreement, the DOT does not provide a liability threshold for setting up this plan. I. As discussed above, penalties and interest will continue to accrue. Furthermore, the taxpayer needs to complete Form 990 – Installment Agreement. The taxpayer will need to propose a payment amount for approval and make payments as proposed during the period for which the DOT reviews the IA.
Installment Agreements Longer Than 24-Months
For installment agreement requests where the taxpayer will not pay the taxes owed in full within 24 months, the DOT will conduct a financial review of the taxpayer. Individual taxpayers need to file Form 990 and Form 3189 – Collection Information Statement – Individual with the installment agreement application. The DOT will use the information contained in Form 3189 to conduct a financial analysis. The financial analysis helps the DOT determine the maximum amount that the taxpayer can afford to pay per month. The DOT leverages “Financial Standards” similar to what the IRS uses for housing, utilities, food, housekeeping supplies, apparel, and so forth. Taxpayers can find the DOT’s Financial Standards here.
Where to Mail the Installment Agreement Request
Taxpayers should mail the installment agreement application to:
State of Michigan – OC
PO Box 30199
Lansing, MI 48909.
The taxpayer can also call 517-241-5060. Alternatively, they can connect with a licensed tax professional to have them set up a plan on their behalf. If the Michigan Accounts Receivable Collection System contacted the taxpayer, the taxpayer should contact them directly to request or set up an installment agreement.
Taxpayer Notification and Other Factors
Once the DOT approves an IA request, the taxpayer will receive a confirmation letter. The confirmation letter describes the due date, the monthly payment amount, and includes payment coupons. Taxpayers paying by check or money order, need to make the check out to the “State of Michigan – OC” and include their account number on their check. The account number may be a social security number, FEIN, or DOT account number. Taxpayers can also pay by ETF or electronic funds transfer. If taxpayers prefer this method of payment, they need to fill out Form 3798 and include it with the Installment Agreement submission. Lastly, taxpayers can make installment agreement payments via the web as well.
If the taxpayer receives a rejection letter, the letter will direct the taxpayer as to how to proceed.
Have a Licensed Tax Professional Negotiate For You
If a taxpayer owes the state of Michigan back taxes, working with a tax professional can simplify the process. A tax pro can assess if an IA is the best option to pursue based on the taxpayer’s tax and financial situation. If you need an IA for longer than 2 years, the DOT will consider your income, expenses, and assets. It is essential to ensure taxpayers accurately present their financial information to the DOT. The DOT will utilize this information to determine what you can afford. To request a free quote or a tax consultation with a tax professional that has experience with Michigan State tax issues, click here, or start your search below.
Reading this article does not create an attorney-client relationship. Moreover, this article should not be used as a substitute for the advice of a competent attorney or tax professional admitted or authorized to practice in your jurisdiction. If you are facing Michigan back taxes problems, contact a licensed tax professional.