Taxpayers who fall behind on tax obligations can have trouble catching up on their debt. Interest and penalties quickly add up, which is why it is always best to pay off a debt to the IRS as quickly as possible. The IRS considers taxpayers who can pay within 120 days of the due date as able to pay in full.
However, for some taxpayers, especially for small business owners in a tough economy, obtaining the cash required to pay off a tax debt is just not possible. For those individuals, the IRS offers four types of Installment Agreements that allow a taxpayer to pay off debts in monthly installments and generally preclude the IRS from taking other enforcement actions against the taxpayer. These installment agreement options are:
- Guaranteed Installment Agreements, which the IRS must approve if the taxpayer meets the requirements
- Streamlined Installment Agreements, which the IRS may approve for taxpayers who are more in debt than those who qualify for Guaranteed Installment Agreements
- Partial Payment Installment Agreements, in which the IRS agrees to a payment plan for less than the full amount the taxpayer owes because he or she could otherwise not meet essential daily living expenses
- Non-Streamlined Installment Agreements, which must be directly negotiated between the taxpayer and the IRS because the taxpayer does not qualify for any of the above Installment Agreements
Changes to Streamlined Installment Agreements
The IRS recently made it easier for taxpayers to qualify for Streamlined Installment Agreements. Now, taxpayers owing less than $50,000 in taxes can qualify, up from the previous $25,000 limit. In addition, taxpayers now have 72 months to pay off the debt, an increase from 60 months. Under some circumstances taxpayers may even have longer payment periods.
To be eligible for Streamlined Installment Agreements, taxpayers must meet the above requirements, owe debt from income tax and:
- Are responsible for a Trust Fund Recovery Penalty
- Have obtained the debt through self-employment taxes or unemployment taxes but no longer own the business
- Have personally liability from a partnership and the partnership has dissolved, or
- Have personal liability for a now-defunct limited liability company
The IRS will cancel the agreement if monthly payments are not made on time. In addition, the IRS still charges interest and penalties, and there is a fee to set up a Streamlined Installment Agreement (currently $105 if paying by check, $52 for direct electronic withdrawals).
Streamlined Installment Agreements are beneficial for taxpayers who owe the IRS. However, Installment Agreements are not the only option for assistance in paying taxes. Offers in Compromise, Innocent Spouse Relief or other IRS rules may apply. For help with your tax debt, removing a tax lien, or for help obtaining a Streamlined Installment Agreement, contact an experienced tax attorney to fully explore your options.