How can an IRS/State payment plan help? If you are unable to pay your entire tax bill when it is due, IRS/State Installment Agreements or IRS/State payment plans can help you pay off your tax debt over a period of time in the form of an installment loan agreement. Typically, IRS/State Installment Agreements take five years or less to complete. The monthly payments are based on how much you owe and how much you can afford to pay each month. The IRS/State may grant extensions to your installment loan agreement under certain conditions.
An Installment Loan Agreement (payment plan) with the IRS/State is a great solution for taxpayers who can afford to fully pay their tax debts if allowed to spread out the payments over several years. It is an alternative if you do not qualify for an Offer in Compromise. The IRS/State charges interest and an application fee when they accept tax payment by way of IRS/State payment plans, but these plans can help you resolve your inability to fully pay your taxes in one payment.
In order to qualify for a payment plan with the IRS/State you must comply with the following rules and provide the IRS/State with this information:
- You must have filed all tax returns (It’s O.K. to owe money but you must file).
- You will need to disclose all assets owned including all cash and bank accounts.
- You must not have adequate cash available in a checking, savings, money market, or brokerage account to pay the IRS/State.
- You must not have the capacity to borrow the amount owed to the IRS/State from other sources (i.e., a second mortgage on your home).
- You must not have adequate equity in a retirement account from which you can borrow or liquidate (i.e. an IRA or 401-K account).
The total dollar amount you owe usually dictates with whom the negotiations will be handled.
- Typically, IRS Revenue Officers are not involved in cases where the amounts owed are less than $25,000.
- The IRS/State will ask you to complete a personal financial statement and if a business is involved, you will also need a business financial statement.
- The IRS/State has determined allowable monthly expenses for individuals, which will be matched against your actual monthly expenses.
- The difference between your monthly income and your allowable monthly expenses will be the amount that the IRS/State will require you to pay on a monthly basis.