An installment agreement can sometimes be your best option if you don’t qualify for an Offer in Compromise or Innocent Spouse Relief. Under an installment agreement you can make monthly payments if you’re not financially able to pay your tax debt immediately. However, you will reduce or eliminate the amount of penalties and interest you pay and avoid the fee associated with setting up an installment agreement if you pay your tax bill in full. Before you apply:
- File all required tax returns;
- Consider other sources (loan or credit card) to pay your tax debt in full to save money;
- Determine the largest monthly payment you can make; and
- Know that your future refunds will be applied to your tax debt until it is paid in full.
To avoid default
- Pay at least your minimum monthly payment when it’s due (direct debit or payroll deductions make this easy);
- File all required tax returns on time;
- Pay all taxes you owe in full and on time (contact us to change your existing agreement if you cannot); and
- Continue to make all scheduled payments even if we apply your refund to your account balance.
The rules governing installment agreements are different for each tax authority, and there are even special requirements for each tax authority depending on how much you owe. For example, the IRS offers a streamlined installment agreement plan for people who owe less than $50,000 and the California Franchise Tax Board offers a streamlined plan for people who owe less than $25,000, but both of these tax authorities require direct negotiation if you owe more.
To find out if an installment agreement is right for you, or for help negotiating with the tax authorities give me a call.