Paying taxes is a source of frustration and stress for many people, especially those that can’t afford them due to financial hardship. Unfortunately, those who fall behind on their taxes believe they’ll get in even more trouble if they contact the Internal Revenue Service (IRS) about their non-payment, causing their debt to grow bigger.
Many don’t know that your best course of action when failing to pay your taxes is informing the IRS right away. They understand that people cannot always pay their taxes on time due to a wide variety of circumstances. For this reason, they offer payment plans or installment agreements that you can use to work towards IRS debt forgiveness and being debt-free. Here’s what you need to know about it:
All About the IRS Payment Plan
An IRS payment plan is an agreement you make with the agency to repay your tax bill over a particular period. You can choose between a short-term and long-term payment plan. You’ll make monthly payments to settle your debt, so as long as you continue these payments, the IRS won’t garnish your wages or seize your bank accounts or property. However, starting an IRS payment plan does not exempt you from interest or penalties for late payment, which accumulates until your balance zeroes out.
Who Qualifies for an IRS Payment Plan?
Getting an IRS payment plan is easy since you don’t need to contact them directly to take advantage of it. You can apply online, although under the following conditions:
- You owe $50,000 or less in combined tax, penalties, and interest, you’ve filed your tax returns, and you want to apply for a long-term payment plan
- You owe less than $100,000 in combined tax, penalties, and interest, and you want to apply for a short-term payment plan.
Regardless of what you choose, you’ll need to confirm your identity, which means having valid identification that provides your name exactly as it appears on your most recently filed tax return. You must also provide a valid email address, date of birth, filing status, address from your most recently filed tax return, your Social Security number or Individual Tax ID number, balance due amount, financial account number, and a mobile phone registered in your name.
However, if you have registered for a tax transcript or another online payment agreement, you can use the same user ID and password to log in and apply for a payment plan.
Payments and Fees of an IRS Payment Plan
The great part about IRS payment plans is that you choose how much you’ll pay every month as the agency will ask you what you can afford. However, if you opt for a long-term payment plan, you’ll need to choose an amount that will ultimately pay your debt within 72 months.
How much you’ll pay for an IRS payment plan relies on the plan you choose, how you apply for it, and if you qualify for a fee reduction. You can qualify as a low-income applicant if your adjusted gross income is at or below 250 percent of the federal poverty level. If you’re a low-income taxpayer, the agency will dispense the user fee if you allow it to make automatic withdrawals from your bank account for the payments. However, if you qualify and cannot make electronic debit payments, the IRS will reimburse the user fee once you repay the balance.
On the other hand, you must pay a processing fee if you pay with a debit or credit card. It will be $2 to $4 per payment on debit cards and 2 percent of the amount on credit cards. If you owe more than $25,000, you must repay your debt through automatic withdrawals from a bank account or direct debit.
Repaying your tax debt, even when you’ve fallen behind, doesn’t have to be intimidating. By applying for an IRS payment plan, you can settle your debt with the IRS by making monthly payments on an amount of your choosing, giving you an affordable way to pay your taxes.
Axiom Tax Resolution Group is a tax resolution specialist ready to help you find a permanent solution to your tax problems with the IRS. If you’re struggling to pay your taxes, contact us today for a free consultation and get closer to becoming debt-free.