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A Complete Guide to IRS Installment Agreements

Dec 16, 2022

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Panic, stressed, or depressed about how to pay taxes? There are certain things one needs to know before getting himself in trouble. The IRS offers flexible payment options in form of installment agreements or payment plans if you cannot afford to pay all of your taxes at once.


What are Installment Agreements?

According to IRS, an Installment Agreement can be defined as:

 

“A payment plan agreement with the IRS to pay the taxes you owe within an extended timeframe. You should request a payment plan if you believe you will be able to pay your taxes in full within the extended time frame.”

 

To avail of the best options from an installment agreement, one must need to have enough awareness about his available financial resources and a little anticipation about future circumstances.

Some agreements are quite simple and you can manage on your own, while others are complicated enough that need tax-pro guidance to set up so you get the most beneficial result.


Let us get a better understanding of the availability of the different installment agreements and their eligibility criteria:

Following the tax laws, the IRS must accept proposals to pay in installments if taxpayers are individuals who:

  • Make timely monthly payments until your tax liability is paid in full.
  • Maintain adequate funds in your bank account.
  • File all required valid personal income tax returns timely.
  • Pay all future income tax liabilities timely.
  • Pay a $34 installment agreement fee, which we will add to your tax liability. The fee amount is subject to change without further notice. (this fee is for plans set up online)
  • If the tax liability you owe exceeds $10,000 or the installment agreement period for payment exceeds 36 months or both, then you must certify that you have a financial hardship
  • Make any required estimated payments if you receive income from sources other than wages like self-employed individuals.


Types of Installment Agreements:

 

1- Streamlined IA

If you owe $50,000 or less or if your business owes $25,000 or less, you may qualify for a Streamlined Installment Agreement (SIA). The IRS calls these installment agreements “streamlined” because they don't require verification of your assets, expenses, liabilities, or income. In other words, no Collection Information Statement is required in most cases as long as you can pay off the balance before the CSED expires.


The Streamlined Installment Agreement demands the following criteria:

  • The tax liability, interest, and penalties do not exceed $50,000;
  • The balance can be paid off within 72 months; and
  • The proposed payment is equal to or greater than the "minimum acceptable payment" (the minimum acceptable payment is greater than $25 or the minimum payment amount reached by dividing the tax liability, interest, and penalties by 50)

The taxpayer can apply online and must pay a set-up fee for the SIA.

 

 

2- Guaranteed IA

A guaranteed installment agreement is designed for taxpayers who owe the IRS less than $10,000 in tax debt. Under a guaranteed agreement, the IRS will not file a federal tax lien against a delinquent taxpayer.

You must have to meet the following requirements for being a qualifier for the GIA:

  • You owe income tax only of $10,000 or less (excluding penalties and interest);
  • You are not failed to file any income tax returns or to pay any tax shown on such returns during any of the preceding five taxable years;
  • You cannot afford to pay the tax immediately;
  • You agree to fully pay the tax liability within 3 years;
  • You agree to file and pay all tax returns during the term of the agreement; and
  • You have not entered into an installment agreement during any of the preceding five taxable years.

 

3- Partial Payment Agreements (PPIA)

A Partial Payment Installment Agreement (PPIA) is a monthly payment plan option for taxpayers who have a tax balance but are unable to fully pay the balance within the remaining time the IRS has to collect, called the Collection Statute Expiration Date (CSED).  

The following are the criteria to qualify:

  • Complete Form 433-F (Collection Information Statement) to report income and living expenses
  • IRS reviews and verifies the information you provide
  • If IRS determines you have liquid assets that can be converted to settle some of the tax debt, the agency will ask for additional information


4- in-business Trust Fund Express Installment Agreements

Businesses that currently have employees can qualify for an In-Business Trust Fund Express Installment Agreement (IBTF-Express IA). These installment agreements generally do not require a financial statement or financial verification as part of the application process.

The criteria to qualify for an IBTF-Express IA are:

  • You owe $25,000 or less at the time the agreement is established. If you owe more than $25,000, you may pay down the liability before agreeing to qualify.
  • The debt must be fully paid within 24 months or before the Collection Statute Expiration Date (CSED), whichever is earlier.
  • You must enroll in a Direct Debit installment agreement (DDIA) if the amount you owe is between $10,000 and $25,000.
  • You must be compliant with all filing and payment requirements.

 

What are the available Payment Methods?

Once your agreement is approved by the IRS, you are all set to consider being in good standing. The following methods can be used by taxpayers to make installment payments:

  • Payroll Deduction
  • Direct Debit/ Credit Cards
  • Check/ Money Order
  • Electronic Federal Tax Payment System (EFTPS)
  • Online Payment Agreement (IRS Website)


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