IRS Allows Installment Plans       

Did you discover this year that you owed more taxes than you had anticipated?  Taxpayers who cannot pay the full tax due may set up an installment payment plan with the IRS. 

 

In 1998, Congress gave taxpayers a right to an installment agreement, provided certain conditions are met, including that the tax owed is not more than $10,000 and the taxpayer will pay it within a three-year period. 

Taxpayers who cannot pay the full tax due may set up an installment payment plan with the IRS.

 

The IRS has since gone beyond those limits and will now grant installments to taxpayers who agree to pay a balance due of $50,000 or less within a five-year period. These agreements do not require a collection manager’s approval, and do not involve the filing of liens. 

Taxpayers may make these agreements in person, by phone, or by correspondence. This streamlined process applies to both individual and business income taxes, and to any type of tax for a business that is no longer operating.

Instead of waiting for a contact from an IRS collector, taxpayers may ask for an installment plan when they file their returns. They should attach Form 9465, “Installment Agreement Request,” to the front of the tax return, listing the proposed monthly payment amount and the day. 

They may also choose to have the payments taken automatically from their bank account. The IRS will generally let them know within 30 days if the proposal is accepted.

There is a fee which ranges between $43 and $105 for setting up the installment agreement. Taxpayers on an installment agreement will also pay interest plus a monthly late payment charge of 0.25% of the balance due for taxpayers with an installment agreement, provided they had filed the return on time and did not receive a notice that the IRS intended to enforce collection through a levy.

Besides possibly qualifying for this reduced late payment penalty, people who cannot pay the taxes owed have another good reason to file their returns on time -- to avoid the late filing penalty of 5% per month of the balance due. Sending as large a payment as possible with the return will lessen any interest and penalty charges.

Taxpayers should make checks payable to "United States Treasury” and should include their name, address, Social Security number, a daytime phone number, the tax year and the form filed. They should not attach the checks to the tax forms, and should send any estimated tax payments separately.

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