When most people first examine tax relief options, they might have their hopes set on an offer in compromise – or their tax debt settled for less than what they owe. Unfortunately, OICs are more often denied by the IRS than they are accepted. When tax debt becomes too much to manage, an IRS installment agreement might be your best option. Here’s an overview of how IRS installment agreements work.
What Is an IRS Installment Agreement?
An installment agreement is basically an IRS payment plan to pay your tax bill over a set period of time. The installment agreement will bundle all taxes owed if you owe tax for more than a year. That said, you cannot have two installment agreements with the IRS. During this time, the IRS will generally stop levying. Collections are typically ceased or prolonged while the installment agreement is pending until it can be approved or rejected. However, the IRS will typically keep any tax refunds you receive and apply them to your tax bill. If the installment agreement request is rejected, collections will be suspended for 30 days. Every taxpayer has the right to appeal a rejection. In this case, collections will be suspended until a decision is made on the appeal.
What IRS Installment Agreements Are Available?
The IRS offers both short-term and long-term installment agreements. Let’s review the eligibility criteria, terms, and costs for both.
Short-Term Installment Agreement
With a short-term installment agreement, you will need to pay your full tax bill within 180 days or less. This option is available to taxpayers who owe less than $100,000 in combined tax, penalties and interest. To qualify, you must be current on all tax returns. Individual taxpayers, including sole proprietors and independent contractors, can apply online, over the phone, via mail or in person for free. It’s important to note that interest will continue to accrue while you’re making payments. The current interest rate is 8% per year, compounded daily. Some penalties will also still apply.
In general, the IRS will ask how much you can afford to pay each month. Once a monthly payment is finalized, payments can be made through automatic bank account withdrawals, also known as a Direct Debit installment agreement. You can also make non-automated payments online or by phone, or via check, money order, or a debit or credit card. Payments made with debit or credit cards will also be charged with a processing fee. Debit card processing fees are about $2-4 per payment while credit card processing fees can be up to 2% of the payment. You can review your installment agreement details through your online IRS account. You can also make some changes to your agreement online including your monthly payment, monthly due date, bank information, and more.
Long-Term Installment Agreement
Individuals
With a long-term installment agreement, you can pay your full tax bill in over 180 days. This option is available to taxpayers who owe less than $50,000 in combined tax, penalties and interest. To qualify, you must be current on all tax returns. Individual taxpayers, including sole proprietors and independent contractors, can apply online, over the phone, via mail or in person for free. It’s important to note that interest will continue to accrue while you’re making payments. The current interest rate is 8% per year, compounded daily. Some penalties will also still apply.
The fees for a long-term installment agreement are more substantial. If you want to pay monthly through automatic withdrawals, there is a $31 online setup fee, or a $107 setup fee to apply by phone, mail or in person. Low-income taxpayers might be able to get this fee waived. If you want to make monthly non-automated payments, you will need to pay a $130 online set up ($43 for low-income taxpayers), or $225 to apply by phone, mail or in person. There is also a $10 fee to revise an existing installment plan or to reinstate after defaulting. This fee may be reimbursed for low-income taxpayers.
Businesses
Businesses are also eligible for long-term installment agreements if they are current on all tax returns and owe $25,000 or less in combined tax, interest and penalties. The same setup fees apply to businesses.
For debt less than $50,000, you will typically have a maximum of 72 months to pay off your tax bill. Your minimum payment can be found by taking your tax balance and dividing it by 72 months. If you find that you won’t be able to pay this calculated amount each month, you’ll need to complete Form 433-F, Collection Information Statement, which obtains your current financial information to determine how to pay your tax bill.
For debt greater than $50,000, you will usually need to submit Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, which obtains your current financial information to determine how to pay your tax bill. The IRS will also examine any meaningful assets you have that can be sold to pay down your balance and then set up an installment agreement.
Tax Help for Those Seeking an Installment Agreement
If you know you won’t qualify for tax debt settlement, an IRS installment agreement may be your best option to help manage your tax debt. An IRS installment agreement can truly be helpful to many taxpayers struggling with their tax debt. The most important thing to remember is to always make your installment agreement payment. If you default on your agreement, it may be terminated, and the IRS may begin enforcement actions. Be sure the installment agreement terms are viable for your own financial situation. Optima Tax Relief has over a decade of experience helping taxpayers get back on track with their tax debt.
Being your own boss can feel freeing and powerful, but with great power comes great responsibility, especially when it comes to taxes. Taking care of all business aspects on your own means you should be prepared to handle all the financial work that comes with the new adventure. Here’s a brief tax guide for the self-employed.
Now that IRS enforcement is picking back up, some taxpayers are seeing that the IRS has placed their overdue tax account with a private collection agency (PCA). CEO David King and Lead Tax Attorney Philip Hwang provide helpful tips on what collection agencies you can trust, how PCAs will notify you of your tax balance and what you can do to resolve your tax burden.
For the most part, our tax situation remains consistent year after year. However, every now and then there are certain life transitions that can dramatically change how you file your taxes, even if just for that year. Here, we will continue to review some of the most common life transitions that can affect your taxes.
If you spent time unemployed last year, you might be wondering how that’ll affect your tax return this year, especially if it was your first time ever being without work. When it comes to unemployment and taxes, you might have some questions. Here’s a breakdown of how unemployment affects your taxes.
The company’s exemplary customer service team was recognized for the fourth straight year.
Optima Tax Relief, the leading nationwide tax resolution firm, is proud to announce that it has won four Stevie® Awards for excellence in customer service and technology. The Stevie Awards for Sales & Customer Service are one of the world’s top honors for sales, customer service, and call center professionals. This year’s awards include:
Frontline Customer Service Team of the Year (Gold)
Customer Service Department of the Year – 100+ employees (first-time finalist) (Gold)
Innovation in Customer Service – Financial Services (Silver)
Best Use of Technology – Customer Service (Silver)
Optima Tax Relief’s Customer Service Team was recognized for its outstanding performance in handling customer inquiries, providing timely and accurate information, and resolving customer issues with the utmost professionalism and care. It is Optima’s fourth year in a row receiving the gold Frontline Customer Service Team of the Year award for the financial services industry, and their first time winning the gold award for Customer Service Department of the Year (100+ employees). The team’s commitment to excellence has helped to establish Optima Tax Relief as a trusted name in tax resolution among clients.
David King, CEO of Optima Tax Relief, expressed his gratitude for the honors stating, “We are thrilled to continue our remarkable streak of success in the area that matters most to us, service. We recognize that most customers would prefer not to need Optima’s services, so we take great pride ensuring they are taken care of when they do. It will be difficult to continue this unprecedented run amongst some of the best brands in the world, but we will have fun taking a run at it.”
Chief Customer Officer, Christine Bui added, “These awards are a testament to not only the innovative ways our team delivers exceptional customer service but also the high level of care our team provides for each of our clients. Regardless of what may be going on in their personal lives, our staff consistently shows up for our clients and helps them navigate through a very challenging time in their lives. I am proud of our team and their dedication to providing our clients with the best possible experience.”
Optima’s use of technology also helped them lead their industry in innovation. The Innovation in Customer Service – Financial Services silver award was given to Optima Tax Relief for its innovative approach to customer service, which includes the use of cutting-edge technology to provide clients with fast and efficient service. The company has developed a range of tools and platforms that enable its customer service representatives to deliver exceptional service to clients, including intelligent call routing, an enhanced client portal, and improved systems.
More than 2,300 nominations from organizations of all sizes and in virtually every industry were evaluated in this year’s competition. Finalists were determined by the average scores of more than 170 professionals worldwide in seven specialized judging committees. Entries were considered in more than 60 categories for customer service and contact center achievements, including Contact Center of the Year, Award for Innovation in Customer Service, and Customer Service Department of the Year; 60 categories for sales and business development achievements, ranging from Senior Sales Executive of the Year to Sales Training or Business Development Executive of the Year to Sales Department of the Year; and categories to recognize new products and services and solution providers, among others. Winners were announced at the awards gala held on Friday, March 3 at Caesars Palace in Las Vegas.
Details about the Stevie Awards for Sales & Customer Service and the list of Stevie winners in all categories are available at https://stevieawards.com/Sales.
Tax scams have become one of the most popular ways criminals steal money and identities. The IRS flagged over $5.7 billion in tax fraud last year and 2023 is not looking any better with so many tax scams circulating. Luckily, there are ways to help avoid tax scams and fraud. Here are the most common tax scams in 2023 and how you can avoid them.
What Are Tax Scams & Fraud?
Tax scams are when criminals use stolen information, like your name, address, birthdate or Social Security Number (SSN), to file a phony tax return. The criminals then steal your refund and leave you with the burden of dealing with the IRS. Tax scams happen all year long but especially during tax season.
Most Common Tax Scams in 2023
According to the IRS, there are a handful of popular scams that you should be wary of in 2023.
IRS Impersonation Scams: Criminals will ask for personal or financial information through unsolicited emails, phone calls, or text messages. Sometimes, scammers will send malicious links via email that entices you to click on it. This action prompts a download of identity-stealing malware onto your computer.
Ghost Tax Preparer Scams: Scammers pose as tax preparers and file your tax returns but do not sign the return or include a preparer tax ID number (PTIN). During the process, they can steal your identity and/or your tax refund.
Social Media Tax Scams: Criminals use your social media information to get other personal information. They might pose as a friend or relative to ask for money or donations. Alternatively, they can send messages that contain malware to steal your identity.
Fraudulent Unemployment Claim Scams: Scammers attempt to steal personal information to claim unemployment benefits on your behalf. You may not realize you were scammed until you receive a Form 1099-G at the end of the year.
Phony Charity Request Scams: Thieves set up phony charities to steal personal information or donations. These fake charities will not have an actual employer identification number (EIN), which is required to verify the existence of a charity.
Economic Impact Payment Scams: COVID-19 stimulus checks have stopped being sent out, but scammers are still sending malicious text messages, phone calls, and emails to request bank account information. They lead you to believe you will receive a new stimulus check, when really they are stealing your personal and financial information.
How to Avoid Tax Scams & Fraud
Knowing how the IRS operates can be the best way to protect yourself against tax scams and fraud. For example, the IRS will reach out to you initially through regular mail through the U.S. Postal Service. If your IRS notice looks suspicious, you can go on the IRS website to search for the letter or notice and confirm its authenticity. The IRS does make phone calls to taxpayers but never threatens legal action or requests payment information over the phone. If you receive a suspicious email or text claiming to be from the IRS, do not reply, click on any links, or open any attachments. If in doubt, you can call the IRS yourself to communicate your concerns.
Report All Tax Scams
Most importantly, you should report all tax scams. Just because you might recognize the scam immediately, it does not mean everyone else will. Reporting the scams can potentially help thousands of other taxpayers. Here’s a breakdown of what to do if you think you are being scammed.
If you receive a suspicious email about your taxes, forward the email to phishing@irs.gov.
If you receive a phony call, email a summary of the occurrence to phishing@irs.gov.
If you clicked on a link within a suspicious email, or entered personal information, report the incident on the IRS Identity Theft Central webpage.
If you receive a suspicious text message about your taxes, you can forward it to 202-552-1226.
If you were scammed by your tax preparer, or believe your tax preparer is not following IRS rules, you can report them with Form 3949-A, Information Referral.
If you receive a bogus form from a financial institution, you should report the incident to the financial institution directly.
It’s better to be safe than sorry in these scenarios, so always report when in doubt. Not doing so can lead to several issues with the IRS that can take months to correct. Dealing with the IRS under any circumstances can be tough. If you need tax help, Optima and our team of experts are here.
These days it is very common for individuals to have regular income, as well as supplemental income. While regular income earned through an employer typically has taxes withheld, some supplemental income does not. If you earn supplemental income, it’s important to learn how it is taxed and when. Here is a brief overview of supplemental income tax.
What Is Supplemental Income?
Supplemental income refers to additional earnings received beyond one’s primary source of income. It typically includes money earned from part-time jobs, freelance work, investments, rental properties, or other side ventures. The purpose of supplemental income is to supplement or add to the individual’s main source of income, providing extra financial support or flexibility. Even if you only work a regular 9 to 5 job, you may still earn supplemental income through any of the following sources:
Some taxpayers do not have regular income through an employer. Instead, they may earn supplemental income through contract work or through a business. Some examples of supplemental income for these groups are:
Schedule E income
Ridesharing service
Sales made through an online shop
Direct sales
How Is Supplemental Income Taxed?
How supplemental income is taxed depends on how the income is classified. For example, income reported on Schedule E will usually consist of estates, trust, real estate rental income, royalties, partnership and S corporation income, and residual interests in real estate mortgage investment conduits (REMICs).
Estates and Trusts
Beneficiaries pay tax on the income of the estate or trust they inherit at their regular income tax rates and at capital gains rates for any capital gains they receive. In addition, if the estate or trust does not distribute all the income to the beneficiaries it will pay tax on any undistributed income.
Royalties
If you are paid royalties for the use of any of your intangible assets, you will receive a Form 1099-MISC that tells you the amount of royalties to report on Schedule E. Royalties are taxed at your regular income tax rate.
Business Income from Partnerships and S-Corps
Taxes for S-Corps pass through to shareholders. Additionally, taxes for partnerships pass through to the partner’s personal income. The tax rate will depend on personal income rates.
Real Estate Rental Income
The tax rate for rental real estate varies from 10% to 37%, depending on your filing status and taxable income.
Tax Rates
Supplemental income for employees is based on personal income tax rates. However, the amount withheld will vary depending on whether your employer pays it out with your regular wages or separately. If it’s combined with your wages, the amount withheld will typically be withheld like wages. If they are paid out separately, employers can withhold at the IRS’s flat rate of 22%. Finally, taxpayers who earn $1 million in supplemental income, it will be taxed at 37%.
You should report supplemental income earned through gig, contract, or freelance work on your individual tax return using Schedule C. In addition, if you receive any 1099 Forms, you should use these to calculate your total income through independent work.
Tax Help for Supplemental Income Earners
Tax policy can change every now and then. If you earn any type of supplemental income, you should stay up to date on all the most recent changes in taxation rules. For example, in 2024 the rules for reporting income earned through Form 1099 are changing drastically. Being unprepared for a change in policy could lead to all sorts of issues. Examples include a large tax bill to an IRS audit. When in doubt, your best bet is to speak to a trusted tax professional to avoid a stressful tax issue. Regardless, if you need tax help, Optima and our team of experts are here.
