You can choose to pay off your IRS installment agreement early or to pay more than the required monthly payment. You must pay at least the minimum monthly payment, but you are welcome to pay more than that amount.
There are several factors to consider when deciding whether to pay off your installment agreement early, including:
- The reduction in accrued penalties and interest
- The cost of getting the money to pay off your tax debt
- Your overall financial situation
Reduced Penalties and Interest
Late-payment penalties and interest continue to accrue while you make payments on an IRS installment plan. The less you pay each month, the more you’ll end up paying in penalties and interest.
Another benefit of paying off your tax debt is that you’ll once again be able to receive a tax refund check. The IRS typically seizes your refund while you are in the process of paying your back taxes.
Eliminating the mental burden of your tax debt can also be valuable. If you’ve been dealing with delinquent tax debt for several years or more, paying off the last dollar of your debt can be a very gratifying feeling.
However, you don’t want to take on additional debt or put yourself in a bad financial situation to pay off your tax debt. If you need to borrow the money, compare the cost of borrowing to the expense of paying IRS penalties and interest. You should also consider the repayment terms and determine if the repayment period and monthly payment amounts will work with your budget.
You should also remember that you’ll have continuing tax obligations as long as you earn income. Only pay off your tax debt early if you’ll also but able to keep up with your estimated tax payments or other tax payments on an ongoing basis.
Instead of paying off your full balance early, you could also consider paying a little more than your monthly payment each month. This approach gives you flexibility in case you suddenly need the extra money for another purpose, but it will also pay off your tax debt sooner if you do it consistently.
The Gartzman Law Firm offers tax settlement help for both federal and state tax debt, including installment agreement requests. Use our contact form to request a consultation with an Atlanta tax resolution attorney.