Setting Up an Installment Agreement
Last updated May 17, 2024
An installment agreement is a payment plan offered by the Internal Revenue Service (IRS) that allows taxpayers to pay their tax debt over time in manageable monthly installments. This article aims to provide a clear understanding of how to set up an installment agreement with the IRS, helping taxpayers resolve their tax liabilities effectively.
Step-by-Step Guide:
- Assess Your Eligibility: Determine whether you are eligible for an installment agreement with the IRS. Generally, taxpayers who owe $50,000 or less in combined tax, penalties, and interest may qualify for a streamlined installment agreement without the need for financial documentation.
- Gather Financial Information: If you owe more than $50,000 or cannot afford the proposed installment payments, gather financial documentation to support your request for an installment agreement. This may include income statements, bank statements, and details of your monthly expenses.
- Choose the Type of Installment Agreement: Decide on the type of installment agreement that best suits your financial situation. Options include:
- Streamlined Installment Agreement: For taxpayers who owe $50,000 or less and can pay off the debt within 72 months.
- Partial Payment Installment Agreement: For taxpayers who cannot afford to pay the full amount owed but can make partial payments over time.
- Non-streamlined Installment Agreement: For taxpayers who owe more than $50,000 or need more than 72 months to pay off the debt.
- Apply Online or by Mail: Apply for an installment agreement with the IRS either online through the Online Payment Agreement tool on the IRS website or by completing and mailing Form 9465, Installment Agreement Request, along with any required financial documentation.
- Propose Payment Terms: Specify the proposed terms of your installment agreement, including the monthly payment amount and the day of the month you prefer for the payment due date. Ensure that the proposed payment amount is realistic and fits within your budget.
- Wait for IRS Response: After submitting your installment agreement request, wait for the IRS to review and respond to your application. This may take several weeks depending on the IRS's workload and processing times.
- Review and Sign the Agreement: If the IRS approves your installment agreement request, carefully review the terms and conditions outlined in the agreement. Sign the agreement to formally accept the terms and commit to making the agreed-upon payments.
- Make Timely Payments: Once your installment agreement is in place, make timely monthly payments according to the agreed-upon schedule. Failure to make payments as scheduled may result in defaulting on the agreement and potential enforcement actions by the IRS.
- Monitor Your Account: Regularly monitor your IRS account to track your payment history and ensure that your installment agreement is in good standing. If you encounter any issues or changes in your financial situation, contact the IRS promptly to discuss potential adjustments to your agreement.
By following these steps and understanding the process of setting up an installment agreement with the IRS, taxpayers can effectively manage their tax debt and avoid more severe consequences such as wage garnishment or bank levies. If you have questions or need assistance with setting up an installment agreement, consider consulting with a qualified tax professional or contacting the IRS for personalized guidance tailored to your specific situation.