What is an Installment Agreement?

Whether you call it an installment agreement, federal tax payment agreement, payment option or an IRS payment plan, the idea is the same—you make payments on the tax you owe. That sounds like a good deal, but you can save money by paying the full amount owed as quickly as possible, minimizing the interest and penalties you’ll be charged. For those who cannot resolve their tax debt immediately, however, an installment agreement can be a reasonable payment option. Installment agreements allow for the full or partial payment of the tax debt in smaller, more manageable amounts.

To be eligible for an installment agreement, you must be current on your withholding and/or estimated tax payments, if required. There are many different types of tax payment plans, but on the whole they fall into two categories: Streamline and Negotiated.

The Streamline Installment Agreement

A Streamline Installment Agreement is for liabilities under $25,000. These types of agreements need little financial disclosure, which includes banking information, employment data, phone number, and date of birth. However, do not let the “streamline” verbiage confuse you. Although this is the simplest type of payment plan, the process of getting into a fair installment agreement can still be difficult. For example, sometimes the IRS will request that you utilize any equity that you have in assets. However, the payment amount is based largely on the balance amount itself so it’s important to tell the IRS only what it asks for. Divulging too much can lead to higher payment amounts than necessary.

The Negotiated Installment Agreement

A Negotiated Installment Agreement is for those owing more than $25,000 to the IRS, or if you owe less than $25,000 and you cannot pay your tax within 5 years or the time the IRS has to collect, whichever is earlier. For such cases, the negotiated payment plan is based on your ability to pay your tax debt. Because the IRS takes your ability to pay into consideration, you will need to provide full financial documentation, including proof of all income and expenses. Negotiated Installment Agreements are a lengthy and more involved process, especially for those who attempt to negotiate for themselves. The IRS has certain allowable standards based on location and number in household, and utilizing what they will or will not accept when completing said information can change the negotiation substantially.

Contact Effectur at 1-800-834-7214 for a free tax consultation to discuss if a payment plan is the best option for you.

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