Having a big tax bill hanging over your head can make you feel like you have the weight of the world on your shoulders – especially when the Internal Revenue Service (IRS) starts making moves toward garnishing your wages or seizing your assets.
Rather than reach that point, it may be time to consider a proactive approach to the situation with an installment agreement for your payments.
What is an IRS installment agreement?
Essentially, you can apply with the IRS for some leniency. If you’re approved for an installment plan, the IRS will halt other collection efforts and give you time to make payments on your debt. (Interest and penalties, however, will continue to accrue until the debt is repaid.)
Most installment agreements are divided into one of two categories:
- 120-day short term payment plans: You can set up payments and divide the debt into amounts that will clear it from your record within 120 days. You are only eligible for this plan if you owe $100,000 or less in combined taxes, interest and penalties.
- Long-term payment plans: If you owe $50,000 or less in combined taxes, interest and penalties and repaying it within 120 days would be impossible or a severe hardship, you can ask the IRS for a longer plan.
In both cases, you can pay via automatic withdrawals, or you can pay via a credit or debit card. It should also be noted that you will have to pay a fee to apply for a long-term payment plan and a fee to set up the bank withdrawals (which are recommended to keep you on track).
What if you still cannot afford to repay the entire debt? You can sometimes work out a Partial Payment Installment Agreement (PPIA), which allows you to make payments you can afford for the remainder of the time that the IRS has to collect (called the Collection Statute Expiration Date, or CSED). After that time, your remaining balance will be zeroed out.
Understanding how to navigate the payment options you have with the IRS can be confusing, which is why it’s often wise to seek experienced legal guidance before you begin.