IRS payment plans offer a lot of flexibility. The basic structure is the same for every type of payment plan:
- You make monthly payments to pay off your tax debt.
- You pay the full amount you owe over the life of the plan (or until the collections statute expires, in some cases.)
- The IRS won’t levy your assets or wages as long as you keep up with your payments and stay in tax compliance.
However, there are also some decisions you’ll get to make when requesting a payment plan. The following three choices are important to think about before you submit your IRS installment agreement request.
Your Monthly Payment Amount
How much should you pay each month? There are pros and cons to making your payment amount higher or lower.
Higher payments allow you to pay off your full balance sooner. You also pay less in penalties and interest over the life of your plan.
On the other hand, a higher payment amount may increase the risk that you default on a payment. You don’t want to request a monthly payment that you can’t really afford, or you’ll risk a default and a payment plan termination.
The Form 9465, Installment Agreement Request suggests that your monthly payment is at least as much as your balance owed divided by 72. However, you may be able to pay less than this amount if your financial situation is tight. Ask your tax resolution attorney about the pros and cons of increasing or decreasing your monthly payment amount.
Your Payment Plan Term
Your monthly payment will typically dictate the length of your payment plan. However, you may want to consider whether you’re better off borrowing money from another source and requesting a shorter repayment period.
There are no setup fees for a payment plan of less than 120 days, and you’ll pay less in penalties in interest. You may need to borrow from friends and family or take out a home equity loan in order to pay your tax debt off this quickly. If you can borrow at a lower rate than the IRS combined penalty and interest rate, you may save money in the long run this way.
Your Payment Method
The IRS prefers for taxpayers to use direct debit for installment agreements. You don’t have to remember to send a check each month, and there is less risk of a default.
There may be lower fees and other benefits to using direct debit. However, you can also use IRS Direct Pay, debit or credit card, check, or money order.
Discuss these decisions with your tax attorney during a consultation about your IRS tax debt problems.
The Gartzman Law Firm offers delinquent tax return preparation and tax settlement help for both federal and state tax debt. Use our contact form to request a consultation with an Atlanta tax resolution attorney.