The Internal Revenue Service is testing a new program to allow people to more easily set up payment plans for their tax debt. An installment agreement is setting up a specific monthly amount to pay back to reduce prior tax debts. Failing to set up an installment agreement means that all past taxes are due immediately, including penalties and interest.
The program in place prior to these new rules works with taxpayers who owe less than $50,000 in combined individual tax, penalties and interest, and businesses must owe less than $25,000.
This new program would have the following benefits:
- Increases the threshold from $50,000 to $100,000 if paying by direct debit or payroll deduction
- Increase payment terms from 72 to 84 months
- Removes the requirement to submit financial documentation usually required on balances greater than $50,000
For those who owe more than $50,000, the IRS will still be able to file a federal lien, which is a legal claim against your property including real estate, personal property and financial assets. To avoid a lien under the new program, the taxpayer must pay the balance down to less than $50,000 prior to the approval of the installment agreement.
A lien can affect you in the following ways:
- A lien attaches to all of your assets (property, securities, vehicles) and to future assets acquired during the duration of the lien
- Once the IRS files a Notice of Federal Lien, it may limit your ability to get credit
- The lien attaches to all business property including accounts receivable
- If you file for bankruptcy, your tax debt may continue after the bankruptcy
To avoid default on the agreement, taxpayers must do the following:
- Pay at least the minimum monthly payment when due
- File all required tax returns and pay all taxes due on time
- Make scheduled payments even if tax refunds are applied to the open balance
If you are in the position where the new installment agreement rules can help you out of a bind, apply for an installment agreement today at https://www.irs.gov/individuals/online-payment-agreement-application.
To apply you’ll need the following:
- Name
- Valid e-mail address
- Address from most recently filed tax return
- Date of birth
- Filing status
- Social Security Number (the one listed first on the tax return if filing jointly)
Take advantage of the new rules for installment agreements to help you get on track. By setting up an installment agreement, you can stop any potential collection actions including a levy on your income or bank accounts. Knowing exactly what you’ll have to pay each month, rather than worrying about how to pay off the full balance right away, can also give you peace of mind.