How IRS Installment Agreements Work

by | Jun 20, 2024 | Tax Relief Solutions

how irs installment agreements work

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, including eligibility criteria, application processes, types of agreements, and key considerations. 

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. IRS 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.

Eligibility Criteria 

To qualify for an IRS installment agreement, taxpayers generally must meet the following criteria: 

  • File all required tax returns. 
  • Have no other installment agreements in place. 
  • Comply with current tax payment obligations. 

However, there are also other eligibility requirements based on the type of installment agreement you apply for.  

What IRS Installment Agreements Are Available? 

The IRS offers four types of installment agreements, each catering to different situations. Let’s review the eligibility criteria, terms, and costs for both.  

Guaranteed Installment Agreements 

Guaranteed Installment Agreements are one of the simplest and most accessible types of IRS installment agreements, designed for taxpayers with relatively small tax debts of $10,000 or less, excluding penalties and interest. To qualify, you must have filed all required tax returns for the previous five years. You must not have had an installment agreement with the IRS in the past five years. You must prove they cannot pay the tax debt in full when it is due, or within 120 days. Finally, you must agree to comply with the tax laws and make timely payments for the duration of the installment agreement. To calculate your minimum monthly payment, you’d add your tax liability, interest, and penalties together and then divide it by 30. 

Guaranteed installment agreements must be paid off within three years. If you miss a payment, the IRS may cancel your agreement and proceed with collections. To apply, you must submit IRS Form 9465, Installment Agreement Request, online, or by mail or phone.  

Streamlined Installment Agreements 

A Streamlined Installment Agreement (SIA) is a simplified payment plan offered by the IRS that allows taxpayers to pay off their tax debt in manageable monthly installments. To qualify, you must owe $50,000 or less in combined tax, penalties, and interest. If you’re a business, you cannot owe more than $25,000 in combined tax, penalties, and interest. To calculate your minimum monthly payment, you’d add your tax liability, interest, and penalties together and then divide it by 72. This type of installment agreement does come with a setup fee. This amount will depend on certain factors such as how you apply and how you plan to make your payments. 

Streamlined installment agreements must be paid off within 72 months or before the Collection Statute Expiration Date (CSED), whichever is sooner. Again, if you miss a payment, the IRS may cancel your agreement and proceed with collections. To apply, you must submit IRS Form 9465, Installment Agreement Request, online, or by mail or phone. 

Non-Streamlined Installment Agreements 

A Non-Streamlined Installment Agreement is a type of payment plan offered by the IRS for taxpayers who owe more than the thresholds for streamlined agreements. To qualify, you must owe more than $50,000 in combined tax, penalties, and interest. For businesses, you must owe more than $25,000 in combined tax, penalties, and interest. This type of installment agreement also comes with a setup fee.  

Your monthly payment is determined by the financial information you provide in IRS Form 433-F or 433-B, Collection Information Statement. The length of the agreement can vary based on your situation. Once the IRS reviews this form, they will either approve the proposed payment plan or suggest modifications based on their financial review. Once the agreement is in place, it’s crucial to inform the IRS of any significant changes in financial circumstances that may affect the ability to keep the agreement. Missed payments can result in the agreement being voided and other collection measures to resume. 

Partial Payment Installment Agreement 

A Partial Payment Installment Agreement (PPIA) is a type of IRS payment plan that allows taxpayers to settle their tax debt for less than the full amount owed. To qualify, you must demonstrate that you’re unable to pay the full tax liability, even over time. You must submit a detailed financial statement, Form 433-F or Form 433-B, to the IRS. Once you submit this form, the IRS will review the information provided and negotiate the monthly payment amount based on your ability to pay. They will also review your finances every two years. If your financial circumstances change, your payment may increase, or your agreement can be terminated altogether.  

The agreement remains in effect until the tax debt is fully paid or the collection statute expires, whichever comes first. The CSED is typically 10 years from the date the tax was assessed. Remember to make all payments on time or you risk having your agreement voided.  

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.

If You Need Tax Help, Contact Us Today for a Free Consultation 

IRS Interest Rate Increases for Q4 2023

by | Oct 17, 2023 | IRS Collections

IRS Interest Rate Increases for Q4 2023

As the fourth quarter of 2023 unfolds, taxpayers across the U.S are faced with an important development – an increase in IRS interest rates. The IRS periodically adjusts its interest rates, and these changes can have significant implications for individuals and businesses. In this article, we will explore the reasons behind the IRS interest rate increases, how they impact taxpayers, and what individuals and businesses can do to navigate this change effectively. 

About IRS Interest Rates 

The IRS sets interest rates to determine the amount of interest that accrues on unpaid taxes, late payments, and overpayments. Interest rates can vary by quarter. They are based on the federal short-term rate plus an additional 0.5 to 5 points, depending on the type of underpayment or overpayment. It’s also crucial to note that IRS interest rates compound daily. This means that the interest charged is based on the previous day’s tax balance, plus the interest. 

What are the new IRS interest rates for Q4 2023? 

The interest rates imposed by the IRS as of October 1, 2023, are as follows: 

  • Individual Tax Underpayment: 8% 
  • Large Corporation Tax Underpayment: 10% 
  • Individual Tax Overpayment: 8% 
  • Large Corporation Tax Overpayment: 7% 
  • Portion of Large Corporation Tax Overpayment Exceeding $10,000: 5.5% 

When does underpayment interest begin? 

The IRS begins charging interest on balances owed beginning on the due date. Your balance will continue to accrue interest until it is paid in full. It’s important to note that tax extensions are not extensions to pay – only to file. This means that if you file for an extension in April, you will have until October to file your taxes. However, your balance will continue to accrue interest until it’s paid in full. That said, if you don’t file your taxes or don’t pay your balance, you’ll also be subject to failure-to-file or failure-to-pay penalties. You can also be penalized for underpaying estimated tax, making a payment with insufficient funds, or failing to file an accurate return.  

When does overpayment interest begin? 

Overpayments happen when you paid the IRS more than you owed in taxes. In these cases, the IRS will owe you a tax refund. The IRS generally has 45 days to issue your refund. If they exceed that time frame, they will typically pay overpayment interest. The interest will begin from the later of the following events: 

  • The tax deadline 
  • The date your late tax return was received by the IRS 
  • The date the IRS received your tax return in a sufficient format 
  • The date a payment was made 

Impact on Taxpayers 

The Q4 2023 increase in IRS interest rates will have several implications for taxpayers: 

  • Increased Costs: Taxpayers who owe money to the IRS will face higher interest costs on unpaid taxes, potentially making it more expensive to resolve their tax liabilities. 
  • More Attractive Savings: On the flip side, taxpayers who are owed refunds or have overpaid their taxes may benefit from higher interest rates on their refunds, making it more attractive to save or invest their tax refunds. 
  • Prompt Payment Encouragement: The higher interest rates can serve as an incentive for taxpayers to pay their taxes promptly, as delaying payments can lead to accruing additional interest charges. 

What You Can Do 

In light of the IRS interest rate increases in Q4 2023, there are steps that individuals and businesses can take to navigate this change effectively.

  • Pay Taxes Promptly: To avoid higher interest charges on unpaid taxes, make sure to pay your tax liabilities on time. 
  • Apply for a Payment Plan: If you cannot afford to pay your balance in full when it’s due, you should contact the IRS immediately to set up a payment plan. Doing so can help lower some of your penalties. 
  • Request Penalty Relief: There are a few instances where you may be able to get your penalties waived, such as being a first-time offender, acting with reasonable cause, or other statutory exceptions. 
  • File an Amended Return: You may be able to reduce your tax balance or penalties by filing an amended return.  

Tax Help for Those with Tax Balances 

Tax laws can be complex, and it’s advisable to consult a tax professional who can provide guidance on tax planning and managing your financial obligations efficiently. It’s essential for taxpayers to stay informed, plan wisely, and consider professional advice to navigate these changes in IRS interest rates effectively. By doing so, individuals and businesses can manage their financial responsibilities in an ever-evolving economic environment. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations. 

If You Need Tax Help, Contact Us Today for a Free Consultation