If you are preparing to file your tax return but cannot pay or have other outstanding tax debt, an installment agreement or IRS payment plan may be the answer. The IRS has several options for short- and long-term extensions of payment of taxes.
Short-Term Payment Plans
- For extensions of less than 180 days.
- Informal agreement.
- No set-up fee.
- Interest and penalties continue to accrue.
Long-Term Payment Plans
- For extensions longer than 180 days.
- Formal agreement.
- Set-up fee of $31- $225 (which may be lowered for low-income taxpayers).
- Interest and penalties continue to accrue and can be substantial.
Eligibility
You must file tax returns for all relevant tax years to be eligible for an installment plan. A taxpayer must owe less than $100,000 for a short-term installment agreement, including penalties and fees. For a long-term installment agreement, the debt must be under $50,000 and must be paid within six years.
A Payment Plan Is Not Always the Best Option
While payment plans may be essential for taxpayers who can pay tax debt within the prescribed time, installment agreements may not be the best option for taxpayers with more significant tax debts. Installment agreements can have unintended consequences, including expanding the period in which the IRS may pursue a tax debt. For this reason, it is advisable to visit a tax professional before seeking or agreeing to any installment agreement.
Tax Compromise or Forgiveness
For many taxpayers, payment of the total amount of a tax debt is not possible, even with the extensions of time provided by installment agreements. These taxpayers may make an Offer in Compromise (OIC), an offer to settle a tax debt for less than the amount owed. Highland Tax Resolution can advise you on the best option for your situation and can negotiate installment agreements or other arrangements with the IRS.