If you owe back taxes and cannot pay them right away, an installment agreement is a good option. An installment agreement allows you to pay the taxes back in manageable monthly installments. Setting up an installment agreement is fairly easy and the IRS will likely accept you payment plan if you owe less than $25K in taxes. This form of payment plan can be set up, you must file your taxes with the IRS first. In order to qualify for an installment agreement, you need to be able to pay off the entire tax amount owed plus interest and penalties in a period of 36 months. If you owe $25,000 in back taxes, your monthly required payment will be around $660 and if you cannot pay this amount monthly, you will have to use a different settlement method. In order to setup this type of payment plan, follow the steps below.
Know how much tax you owe. Before setting up this type of agreement, be sure you know how much tax you owe. You will need this in order to calculate your minimum monthly payment amount. If your tax return is not past due, you can just take the amount off of your tax return. If you have been assessed with late taxes, you will need to figure in the amount of penalties and interest to add onto your total amount due.
If you determined that you owe less than $25K in taxes, you have several options to setup the payment plan. First, you can use the Online Payment Agreement (OPA) . The OPA is the IRS's way of automating this procedure and making it easy for taxpayers to request a payment plan. The second way you can file for this type of agreement or if you have difficulty with the OPA method, you can call the phone number on the OPA site or call (800) 829-1040 begin_of_the_skype_highlighting FREE (800) 829-1040 end_of_the_skype_highlighting to reach the IRS for help setting up the payment plan. You can also apply for an installment agreement using IRS form 9465 and mail it into the address on your tax bill.
If you do owe more than $25K, you can still apply for an installment agreement but you will have to file some extra paperwork. You will need to file Form 433-F, which is the collection information statement. This statement will show the IRS your assets and prove that you have the assets to pay the amounts owed. The IRS can deny your installment agreement request based upon this information as well. If the IRS denies your request, it is likely that you will be considered for another form of settlement. The next type of payment plan to look into is a partial payment installment agreement where the IRS will consider accepting less money.
You will be required to pay a onetime fee when setting up the payment plan. It will cost $105 if you decide to do monthly check payments, $52 for making it deduct directly from your bank account, or $45 for reinstating an agreement that was broken or changing terms.
Installment agreements are the easiest form of resolving taxes owed to the IRS other than paying in full. At times, the IRS can be very hesitant to accept an agreement if it believes you will not be able to pay and it will be able to collect from you more efficiently in a different manner. When it is questionable if your installment agreement will be accepted, it is highly advised you use a tax professional to help you with your back taxes and they can advise you on the appropriate settlement method. The IRS sees thousands and thousands of cases every year similar to yours and you can be assured that they have methods for you to settle no matter what your situation.
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