If you have tax liability but are unable to pay it in full you may establish a payment plan, in IRS jargon called Installment Agreement. There are several types of Installment Agreements, but before you can establish one you need to be in compliance, i.e. file all required tax returns and pay current year's estimated taxes.
Guaranteed Installment Agreement
You can enter into Guaranteed Installment Agreement if you meet the following criteria:
- The aggregate amount of your tax liability without interest and penalties does not exceed $10,000;
- During the last 5 years you filed all your tax returns on time, paid your taxes on time and didn’t enter into an installment agreement;
- You can pay your total tax liability within 3 years;
- You agree that you will file and pay all future taxes on time.
The benefit if such agreement is that the IRS will not file a federal tax lien against you if agreement is established on time.
Streamlined Installment Agreement
You can enter into a Streamlined Installment Agreement if you meet the following criteria:
- The aggregate amount of your tax liability without interest and penalties does not exceed $50,000;
- You can fully pay your tax liability within 6 years;
- You owe individual income tax or business taxes for a business that ceased to exist;
When aggregate amount of tax liability is $25,001 - $50,000 the conditions for establishing Streamlined Installment Agreement become more stringent:
- You need to file Collection Information Statement with the IRS to verify your current ability to pay (this can be quite cumbersome to complete on your own);
- You owe only individual income tax or out-of-business Schedule C taxes;
- The agreement can be established with direct debit feature, debiting your bank account or paycheck on a monthly basis. If you do so, filing Collection Information Statement with the IRS can be waived.
No federal tax lien is filed as well for Streamlined Installment Agreements, if established on time.
Partial Pay Installment Agreements
Partial Pay Installment Agreement is more complex than the 2 types above, and as the name suggests, established when you cannot pay your tax liability in full within the remaining period of the collection statue. You have to prepare Collection Information Statement to determine how much you can pay monthly after taking into consideration necessary living expenses according to the IRS standards. IRS will file a federal tax lien to secure government interests.
To tackle Streamlined and Partial Pay Installment Agreements we definitely recommend professional services, otherwise you could be trapped into unfavorable plan which will cause economic hardship to you and your family.
Installment Agreement Fees
IRS charges the following fees for establishing Installment Agreements:
- $107 for a direct debit agreement;
- $225 (effective January 1, 2017) for a standard agreement or payroll deduction agreement; or
- $43 if your income is below poverty guidelines
Enrolled Agents at IBA Tax Group can help file your tax returns, set up a payment plan that fits your ability to pay and negotiate with the IRS better terms. Call us today for a FREE consultation.