This guest post was written by Manny Davis. Manny is President of Back Taxes Help, LLC, a tax resolution firm that helps businesses and taxpayers pay back taxes. Visit BackTaxesHelp.com for more information on various IRS tax settlement solutions.
Every year millions of Americans find themselves with back taxes or tax bills they cannot afford to pay all at once. Whatever the cause, the IRS is willing to work with taxpayers and offers a variety of Installment Agreements (IRS Payment Plans), depending on the total amount they owe. An IRS Installment Agreement (IA) will allow you as a taxpayer to pay off your taxes through monthly payments that can last anywhere from three to five years depending on the amount you owe.
If You Owe $10,000 or Less
If you owe the IRS $10,000 or less and are not able to pay the government in full, you will want to apply for a Guaranteed Installment Agreement (GIA). When applying for this type of Installment Agreement, you can use the IRS’s Online Payment Agreement Application (OPA) , or you can fill out form 9465 and include it with your tax return. The reason this IA is “Guaranteed” is because the IRS must accept the agreement, so long as you meet the following conditions: 1) you filed your tax returns on time over the last five years, 2) you are not currently involved in another Installment Agreement, 3) you are not in bankruptcy, and 4) you agree to pay the IRS over 36 months or less.
To calculate your minimum monthly payment, take the total amount you owe and divide that number by 30 (for 30 months), as the last 6 months account for interest and penalties. Whether you use form 9465 or the IRS’s OPA, make sure to include the user fee ($105 for non-direct debit payments and $52 for direct debit) with your first month’s payment.
If You Owe $25,000 or Less
If you owe the IRS more than $10,000 but less than $25,000 you want to apply for what is called a Streamlined Installment Agreement. Just like the Guaranteed IA, you can use the IRS’s Online Payment Agreement Application or you can fill out form 9465 and include it with your tax return. This type of IA can last as long as 60 months (five years). The reason this is called a “Streamlined” agreement is because it does not require full financial disclosure; however, the IRS does not have to accept this type of IA. The requirements for this type of IA are similar to those of a Guaranteed IA, except that you should agree to pay the taxes you owe over a period of five years or less. To figure your minimum monthly payment, divide the total amount you owe by 50 (for 50 months). Last but not least, include the user fee (discussed above) with your first month’s payment.
If You Owe $25,000 or More
If you owe the IRS $25,000 or more, or you cannot make the minimum monthly payment on a Streamlined IA, look to apply for an Installment Agreement based on verified financial statements. Unlike a Streamlined IA, this will require full financial disclosure through the use of a Collection Information Statement (form 433A). Realize that this means you need to disclose your assets, income, and expenses for your household. The minimum monthly payment here will be determined by what you have the ability to pay, or what form 433A shows you are able to pay. In some cases, the IRS will require that you liquidate assets in order to satisfy some tax debt before this type of IA will be accepted. In order to qualify, you need to ensure that 1) you have filed your taxes on time over the last five years, 2) do not have any other IAs setup, and 3) you have not had an Offer In Compromise accepted.
In summary, make sure you request the correct IRS Installment Agreement if you cannot pay your IRS taxes in full. The right IRS Installment agreement is largely based on your total debt amount, but it can also be determined by whether you can make a certain IA’s minimum monthly payment. Remember, like with most payment plans, the faster you pay it off the less interest you accrue and the more you save.