Agreement? What You Need to Know
Considering the year we have had, it is understandable that some people would miss their payments on their IRS installment agreement. In case you have defaulted, there is no need to panic. The earlier you act, the better it will be for you.
What is an IRS installment agreement?
The IRS makes it easy for taxpayers to pay their taxes with an installment agreement, under which they can pay it in installments over time. If you are an individual who owes less than $50,000, combining the tax, interest, and penalties, you can apply online. Even if you don’t qualify under these conditions, you can apply for an agreement over mail.
With an installment agreement, you reduce the penalty fees from 0.5% to 0.25%. It is a simple process that makes it easier for some people to qualify. But you have to pay the agreed-upon amount every month for the life of the term. You must pay all scheduled payments even if you know that your tax refund is being applied to the balance.
Defaulting on your IRS installment agreement
If you default on a payment, you will be liable to pay the entire amount of the tax bill that you have left in one payment. If you do not pay this amount by the deadline, which is usually 30 days, then you risk entering collective action, which usually starts with a lien on your account.
You can reinstate your installment agreement, but you often will have to pay a reinstatement fee, and you may have higher penalty fees until your payment plan is reinstated.
Reasons why your installment agreement may be canceled
Usually, the IRS does not cancel an installment agreement at the first sign of a missed or late payment. But they can cancel the agreement under any of the following circumstances.
- Missed payments
- Frequent late payments
- A new tax debt
- Not filing tax returns
- Not paying your current tax liability
What to do if you miss a payment
In case you miss a payment or feel that you could default, the first thing to do is to contact the IRS. If you can’t make the payment, don’t postpone letting the agency know. Transparency is key to avoiding a cancelation of your installment agreement. They may offer a solution, including temporary amnesty or a reduced payment.
Despite what you may have heard, the IRS will be willing to help you when you reach out. Usually, they will not cancel an installment agreement after just one missed or late payment, and you would have a 30-60 day grace period.
What if you are financially unable to pay
Sometimes your financial situation may have changed for the worse and you may no longer be able to make the payments. Perhaps you lost your job or had a medical situation that racked up debt. Again, the important thing to do here is to contact the agency.
Reach out to the IRS directly to discuss the options for amending your installment agreement. Be prepared to provide proof of the changes in your circumstances.
How to prevent defaults
Of course, the best way to honor the installment agreement is to make the payments regularly. Set up a direct debit as part of your plan so that you don’t need a reminder. Make sure that you have adequate funds in your account at the right time of the month.
When you need help If you struggle with your tax debt and do not wish to work directly with the IRS, please contact Fidelity Tax Relief at 877-372-2520. Our tax professionals will review your situation and discuss the best options for you. We will work as your advocate to the IRS