What to expect when making an installment agreement with the IRS

On Behalf of | Dec 2, 2021 | Tax Planning

If you owe money to the Internal Revenue Service (IRS) because you underpaid your taxes, you will have to pay them back, likely with interest. Failing to pay what you owe in full could quickly lead to an audit or even criminal charges.

Not everyone has the resources to pay off a massive tax debt as soon as they learn about it. Instead, they may need to negotiate an installment-based payment plan with the IRS. What should you expect if you need to arrange for a payment plan to pay what you owe on your taxes?

You must determine how quickly you can repay your debt

The IRS typically has two systems for installment agreements. Those who can repay their tax debts within 180 days can request a short-term payment plan. There are no fees for applying or setting up a short-term payment plan.

If it will take you more than six monthly payments to pay off your tax debt, then you will need to arrange a long-term payment plan. The plan might last for several years, and you will likely have to pay a fee to the IRS to establish the plan. This fee helps cover the costs of reviewing and processing these agreements. You can potentially apply for an installment agreement online once you know what kind of plan you need.

You must make monthly payments as promised on time

Once you enter into an installment agreement with the IRS, you need to at least pay the minimum monthly amount by the due date every time.

If you fail to do so, you may incur additional penalties and interest. If your financial or living circumstances change, you will want to contact the IRS as soon as possible to notify them and have them update your payment plan accordingly.

You can potentially avoid criminal charges by agreeing to make payments

The more you owe in taxes and the more it seems like you underpaid intentionally, the more likely you are to face allegations of tax fraud or tax evasion. When you agree to start repaying your tax debt and abide by that promise, you may decrease your likelihood of facing criminal charges for a tax mistake.

Understanding the benefits of a payment plan with the IRS could help you finally regain control over your income tax situation.