As a responsible taxpayer, it’s important to stay up-to-date with your payment agreements with the IRS. If you happen to fall behind on tax payments, the IRS offers several options to help you get back on track. In this article, we’ll take a closer look at payment agreements with the IRS and how they can benefit you.
What are Payment Agreements with the IRS?
A payment agreement is a plan that allows taxpayers to pay their tax debt over time instead of in a lump sum. When you enter into a payment agreement with the IRS, you agree to make regular payments until your tax debt is fully paid off.
There are several different types of payment agreements available:
1. Guaranteed Installment Agreements
This is the most common type of payment agreement. If you owe less than $10,000, and can pay off your debt within three years, you can enter into a guaranteed installment agreement. You’ll make monthly payments until your debt is paid off, including any penalties and interest accrued.
2. Streamlined Installment Agreements
If you owe between $10,000 and $50,000, you can enter into a streamlined installment agreement. You’ll have up to six years to pay off your debt, and you won’t need to provide any financial information to the IRS.
3. Partial Payment Installment Agreements
If you can’t afford to make the payments required by a guaranteed or streamlined installment agreement, you can enter into a partial payment installment agreement. This type of agreement allows you to pay a portion of your debt over time and have the remaining balance forgiven.
4. Offer in Compromise
If you owe more than you can afford to pay, you may qualify for an offer in compromise. This is an agreement that allows you to settle your debt for less than you owe. However, this is a difficult agreement to obtain, and not all taxpayers will qualify.
The Benefits of Payment Agreements
Entering into a payment agreement with the IRS can offer several benefits, including:
1. Avoiding penalties and interest
When you owe taxes and do not pay them in full, the IRS will charge penalties and interest on the unpaid debt. By entering into a payment agreement, you can avoid these additional fees and reduce the overall amount you owe.
2. Managing your debt
A payment agreement allows you to manage your debt more effectively by making regular payments that fit within your budget.
3. Protecting your credit score
If you fail to pay your taxes, the IRS can place a lien on your property or garnish your wages. This can damage your credit score and make it difficult to obtain loans or credit in the future. A payment agreement can help you avoid these negative consequences.
Entering into a payment agreement with the IRS can be a smart move for taxpayers who are struggling to pay their debt. By choosing the right type of agreement and making regular payments, you can avoid penalties and interest, manage your debt, and protect your credit score. Be sure to consult with a tax professional to determine the best payment plan for your unique situation.