The Basics of Installment Agreements

After people have filed for their annual tax return, they become aware that they owe the IRS a large amount of money. What makes matters worse for them is recognizing that they do not have sufficient funds to pay for all these tax debts. Good thing that this kind of IRS issue is made much more manageable because of the availability of a number of options for the taxpayers. Among these is the setting up of an installment agreement.

The IRS actually allows you to set your monthly due and the date that it has to be settled in your request for an installment plan. In fact, the IRS is more likely to approve your request if your tax bill does not go over $10,000, have filed your returns and paid your taxes in a timely manner and have proven that you don't have that much money available. The only major concern is that the provisions in your installment plan should sufficiently pay for all your tax dues in three years.  Applying for one is as easy as accomplishing Form 9465 (Installment Agreement Request Form) and attaching it to your tax return.

In some occasions, especially when the taxpayer is really financially strapped, the IRS can offer the option to make partial payments of tax liability. Those who avail of this option are required to provide specific financial details regarding their equity assets. It is imperative that the pieces of information provided are consistent and correct as these will be verified by the IRS. Also, every two years, the IRS will check if the taxpayer is already in a better financial position. If so, the monthly payment will be increased or the arrangement, be altogether, terminated.  Although slightly different, this type of understanding is an installment plan nonetheless. 

Whether or not you decide or are not able to pay your tax bill in one complete payment or you choose to use any of the installment agreement alternatives available, the fact is, you will be paying more money to the IRS the longer you extend your payment agreement. You are essentially buying time from the IRS to pay them money. There are also applicable charges associated with this arrangement. The IRS will charge a one-time fee of $105 unless you opt to directly debit your monthly payment from your bank account. If you set up a direct debit agreement, the fee actually goes down to $52. The fee even goes as low as $43 if you qualify for the requisites of being in the lower income tax bracket.

While setting up installment plans seems a very attractive option, other taxpayers see it in a different perspective. For them, it is more advantageous to apply for an Offer in Compromise, or OIC, because even if it requires them to give out a lump-sum amount, this is considerably lesser than the original tax due. However, if tax problems necessitate the use of any of the mentioned strategies, it is always best to seek expert assistance regarding this matter.