Missing a payment on your IRS installment agreement can be unsettling. Luckily, the situation is manageable if you act quickly. Here’s what to expect and how to respond if you fall behind.
Expect Financial Penalties and Interest
When you miss a payment, the IRS generally applies a late payment penalty of 0.5 percent of the unpaid tax each month. This can stack up to 25 percent of your entire balance. In addition to the penalty, daily interest accrues on the outstanding amount. That interest rate is based on the federal short-term rate plus 3 percent and compounds daily.
Penalty Relief Might Be an Option
You may be eligible for penalty abatement if you have a legitimate reason for missing a payment. The IRS allows taxpayers to request relief based on a reasonable cause. Common examples include medical emergencies, natural disasters, or other significant hardships. To pursue this, you’ll need to file IRS Form 843 (“Claim for Refund and Request for Abatement”) or submit a written explanation supported by documentation such as hospital records or insurance claims.
While it is unlikely that the interest will be waived, the penalties might be reduced or removed if your reason meets IRS criteria. That said, success depends on the strength of your case and the supporting materials you provide. As a result, it is good practice to provide as much supporting evidence as you can.
What a Missed Payment Means for Your Agreement
One missed installment doesn’t automatically end your agreement, but it does raise red flags. The IRS may issue a default warning, giving you time to fix the issue. Failing to address that notice could result in the termination of your agreement. If that happens, the IRS could move to collect the full amount through methods like wage garnishment or liens.
Act Now
Don’t let one missed payment spiral into a bigger problem. Reach out to the expert team at Highland Tax Group for guidance on resolving the issue, exploring penalty relief, or adjusting your payment terms. Our team can help you work within IRS rules to stay on track.