How to Set Up an IRS Payment Plan: CPA Approved
Do you owe the IRS any back taxes? If so, you have various payment options, if you are finding it difficult to come up with the funds to pay the tax debt you owe to the federal government. The IRS has a tax payment plan that facilitates tax payers who are in need of help of filing their back taxes.
If you don’t want to be threatened with collection, there are some things you can do. However, the IRS also has options, if your debt goes into collections, but it is best not to let it get that far.
Don't Stress over Taxes! We Help You Find the Best Offer. Visit the Taxry Store NOW!
You can consider the automatic arrangement for payment, which is the most favorable option. However, there are other options such as an agreement for partial payment, compromise resolution offers, and agreements for simplified installments and agreements for tiered installments.
Each payment plan has different issues, benefits and requirements to consider. If you are using tax and accounting services, you can discuss these issues and requirements to get a full understanding. Below, we will go through these plans and answers to questions you may want to have answered.
What Takes Place, If No Payment Is Made?
If you do not pay attention to the tax bill received from the IRS and ignore it; not taking the necessary steps to set up a payment plan, then you are going to be in trough with the IRS because they will take the appropriate action. There are different means and methods by which the IRS attempts collection, if you do not make a payment toward your tax debt.
Federal Tax Lien
The IRS will put a lien on your assets or property. You will receive a garnishment notice, which is the first step taken by the IRS. This notice will only be issued, if the amount owed goes over $10,000. If you continue to ignore the notices sent by the IRS, then your property will be seized as well as wage garnishment, seizure of bank account, sale of your cars, home and other assets.
Filling Your Taxes
If you are unable to pay your back tax, you should still continue to file income tax returns for subsequent years. Of course, a penalty will be imposed by the IRS. The penalty is additional payment to the back taxes owed. The penalty currently is 5 percent each month and this can add up fast. Fresh Start Initiative is a program that the IRS has as a penalty waiver.
Does the IRS Accept Credit Card Payments?
If you owe the IRS back taxes, you can pay using your credit card; whether for full payment or partial payment. For any IRS payment plan, you can use Discover card, Visa, Mastercard, Debit card, or American Express. To use this form of payment, you have to complete it through 3 platforms only:
WorldPay
Link2Gov
Official Payments
You have to pay the convenience fee that these companies charge. It is usually two percent of the total balance. Some credit card companies will charge their own fees and so, you should keep a record because it could be a write off on your tax return as an itemized expense.
What If Your Tax Bill Is High?
If you have a large tax bill and your credit card limit does not suffice, you can choose the monthly IRS payment plan. As noted before, the IRS gives you a few installment plans to choose from. Your tax adviser can assist you in determining which one of the repayment plans suits your situation. You may even use a tax tracker to give you an idea on how much is owed and then you can decide the plan to choose.
How To Negotiate The Monthly Plan?
If your tax bill exceeds $50,000 and it is not possible to pay the total balance within six years, then you have to work out an approved payment plan with the IRS. Make sure to choose a realistic and practical plan you can live with. First, you will receive a ‘collection information statement,’ which will be used to assess the information so it can be determined how much you will pay for each installment. The whole process will be at the IRS discretion. During the negotiation process with the IRS, you have to put up an offer. Make sure it is your income amount subtracted by your living expenses. Never choose a plan you are unable to afford, if you want to be approved because there is no room for further negotiation, if your first offer is approved. Therefore, be sure that the option you choose is feasible.
The Required Forms
For those whose tax bill exceeds $50,000, two forms are necessary to proceed and these include:
Form 433-F
Form 9465
On these two forms, you have to make a list of your real estate property, lines of credit and other assets. In addition, you have to provide monthly income, employment details and living expenses. You cannot complete the forms online. It is best to hire a tax auditor to help you with this part of the process. You may be able to reach a quicker agreement with the IRS.
Making the Offer
When you make an offer and it is approved, be sure that your first payment is made at the same time. Be sure to make the same amounts each month as payment, whether the plan is approved or not. You will find the amounts in the barcode envelope that the IRS provides with the notices sent to you. IRS Collectors prefer to work with anyone making voluntary payments. These payments can be made by phone, online, by money order, credit card and check. It doesn’t matter how you pay – as long as you pay.
Different Forms of Payment
Once your agreement for an installation plan is approved, you will be able to make payment through direct debit and direct payroll. With direct debit, the funds will be automatically withdrawn from your bank account every month and the payment will be sent to the IRS by your bank. Make sure that you have enough funds in your bank account at all times or your installment contract with the IRS could be in jeopardy. The direct payroll option is where you arrange that your employer deduct the funds from your salary and send to the IRS every month.
Small Business Owners
If you own a small business and owe the government money for back taxes, you can choose the installment contract, if you owe $25,000 or less. However, there are certain requirements such as the number of employees. This is a 2 year agreement to pay off the outstanding balance in full. If the balance is in excess of $10,000, but less than $25,000, an agreement to pay via direct debit has to be established with the IRS and the application can be made by phone or on the Internet.
Fees for Installment Agreements
Prior to a proposed payment plan, you need to be aware of the related fees. As of January 2017, the current fee is $225, but this is always subject to changes and revisions. Once you have entered into an agreement with the IRS, the fee will be applied.
Is It Possible To Be Rejected for An Installment Agreement?
You could receive rejection from the IRS and there are three distinct reasons why:
Living Expenses
If your daily expenses seem to be too extravagant, you will be denied the option of setting up an IRS Payment Plan.
Incorrect Collection Information Statement
If you completed “Form 433-A” and any detail is incorrect, untrue or incomplete; your offer will be rejected because the IRS might think you are trying to hide something.
Installment Breach
If you have had a payment plan and breached the agreement, there will be a lot of hesitation to accept and approve a new proposal by the IRS.
If you received a decline of your installment payment plan, it is possible to renegotiate with the IRS. Let your tax adviser help you evaluate and prepare for the proposal so you have a better chance of approval.
Offer in Compromise
If you are having problems with paying the entire back taxes you owe, you could consider the “Offer in Compromise.” This allows you to pay a lesser amount of taxes owed. It is not as easy to qualify. In fact, you may need the assistance of a tax expert to be considered eligible for this option. The process can take as much as a year. However, while you wait, it is best to continue making payments. The “Offer in Compromise” will not be considered, if you are not showing fiscal responsibly in paying what you owe.
Conclusion
In some cases, the IRS can rescind the agreement, but this does not happen a lot. It does happen, if you have missed payments, payment of subsequent income taxes and unreported details. Other than this, once you make an agreement to pay, it is in your best interest to do so and when it is fully paid, it will be well noted by the IRS.