An installment agreement is the end result of properly presenting a taxpayer’s financial condition and negotiating an acceptable monthly payment. If your payment is late or you do not meet all of the terms of the Agreement, the IRS will consider you to be in default and terminate the Agreement. This will result in the IRS taking enforced collection action. You need to make every effort to pay your future taxes in full when they are due, and no later than the time you file your tax returns. Not paying future taxes by the time you file your future returns will result in a default under the Agreement. If you default, it will be almost impossible to get another Agreement. The following lists the more common installment agreement options available to taxpayers:
- Guaranteed Installment Agreements: Requires the IRS to accept proposed installment agreements from an individual who owes income tax of $10,000 or less (excluding penalties and interest), agrees to fully pay the tax liability within three years, has not entered into an installment agreement within the preceding five tax years, has not failed to file an income tax return or pay any tax shown on such returns during any of the preceding five tax years, and agrees to file and pay all tax returns during the term of the agreement.
- Streamlined Installment Agreements for $25,000 or Less: Available if the taxpayer owes $25,000 or less, can pay the amount owed within 72 months, is current with all filing and payment obligations, and owes any type of tax. The dollar limit includes tax, assessed penalty and interest, and all other assessments on the tax modules, but does not include accrued penalty and interest.
- Streamlined Installment Agreements for $25,001 to $50,000: Available if the taxpayer owes $25,001 to $50,000, can pay the amount owed within 72 months, is current with all filing and payment requirements, and owes any type of tax. The taxpayer must enroll in a direct debit installment agreement, and a limited amount of financial information may be required during the application process.
- In-business Trust Fund Express Installment Agreements: Small businesses with employees can qualify for this agreement, which does not require a financial statement or financial verification if the business owes $25,000 or less at the time the agreement is established, and can pay the amount owed within 24 months. To be eligible, the business must be current with all filing and payment requirements, and must enroll in a direct debit installment agreement if the amount owed is between $10,000 and $25,000.
- Partial Payment Installment Agreements: If full payment cannot be achieved by the collection statute expiration date but the taxpayer has some ability to pay, the IRS can enter into a partial payment agreement. In most cases, the taxpayer will be required to use equity in assets to pay liabilities. By law, the IRS is supposed to review the agreement (the taxpayer’s financial condition) every two years.
- Other (Routine) Installment Agreements: If the taxpayer does not qualify for a guaranteed, streamlined, or in-business trust fund express agreements, a plan for resolving the balance due will be based on the taxpayer’s Collection Information Statement and supporting documentation. Generally speaking, there are no minimum or maximum dollar limits for what can be included in an installment agreement. Instead, the agreement must reflect the taxpayer’s ability to pay on a monthly basis throughout the duration of the agreement.
Frequently Asked Questions About Installment Agreements
Do you have an installment agreement for each year?
No, if you have a current installment agreement and are assessed taxes you are unable to pay in a future tax year, you can add that new balance to your existing agreement.
What happens if I default on my IRS installment agreement?
If you fall behind on payments or stop paying entirely, the IRS can cancel the installment agreement and put you into default. The IRS would then start collection action.
Will the IRS reinstate my installment agreement?
You have 30 days from the date of the CP523 Notice of Default before the IRS may terminate the installment agreement. This gives the taxpayer time to correct the issue that caused the default and reinstate the installment agreement.
How long is an installment agreement with the IRS?
A streamlined installment agreement gives you 72 months (about six years) to pay. Non-streamline installment agreements can vary depending on the amount of tax debt owed.
What if I miss an IRS installment payment?
If you are temporarily not able to pay, contact the IRS and alert them of your financial situation. In general, they will not default an Installment Agreement after just one missed or late payment, and so you usually have a 30-60 day grace period.
Can you pay off an IRS installment agreement early?
There is no penalty for paying off your IRS payment plan early.