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How Does the IRS Installment Agreement Work?

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If you owe income taxes and can't pay them, the IRS will set up an IRS installment agreement that will help you pay your taxes. It's easy to do, and it will save you from IRS hassles over the missing money. Here's how to do it. First, there are four types of installment agreements available from the IRS. They include: Guaranteed Installment Agreements, Streamlined Installment Agreements, Partial Payment Installment Agreements, and "Non-Streamlined" Installment Agreements. Here's how they work.

  • Guaranteed Installment Agreements – The IRS is bound to agree to an installment agreement with you as long as you owe less than $10,000, and meet certain other criteria, such as your tax returns are all filed, you'll pay off your debt within three years, and you haven't had an installment agreement in the last five years. If you enter this type of agreement, the IRS will not file a tax lien against you or your business.
  • Streamlined Installment Agreements – This agreement is for people who owe $25,000 or less and can pay their balance off within 60 months. The other requirements are the same as the Guaranteed Agreement, and the IRS will not file a tax lien against your or your business, either.
  • Partial Payment Installment Agreements – These take into account larger amounts owed and other circumstances, such as your ability to repay the taxes, especially over longer time periods. With this type of agreement, the IRS will ask you to fill out a financial statement, and they'll use a tax lien to guarantee you repay.
  • "Non-Streamlined" Installment Agreements – If you don't meet the requirements of the other installment agreements, your balance is over $25,000, or you need longer to pay, you'll have to negotiate an agreement with the IRS. This is the only type of agreement that the IRS is not guaranteed to approve, and it has to be approved by an IRS department manager. They will require a financial statement and will file a tax lien for this type of agreement.
  • Once you determine what type of installment agreement works in your circumstances, it is relatively easy to set up an agreement. You can do it by phone, in person, online, or your tax preparer can do it for you, and it usually takes about 30 days to be approved and put into place.
  • It's important to know that the IRS will charge you a fee to set up your payment plan. The charges vary for different plans. It charges $52 for direct debit agreements, $105 for agreements without direct debit, and $45 for restructuring or reinstating a defaulting agreement. If you're a low income taxpayer, you can ask for a lower fee of $43.

You'll fill out a form, choose the day of the month you want to make your payment, and choose how much you want to pay each month. Make sure to pay your payment every month, or your IRS installment agreement will default, and you'll earn additional penalties and interest.

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