It’s my annual “Taxes from A to Z” series! If you’re wondering whether you can claim home office expenses or whether to deduct a capital loss, you won’t want to miss a single letter.
I is for Installment Agreement.
If you can’t pay your tax bill to the Internal Revenue Service (IRS) in full, all is not lost: Options are available. One of those options is a long-term payment plan, also known as an installment agreement.
An installment agreement is an option when you anticipate taking more than 120 days (about four months) to pay your tax bill. Depending on how much you owe, you won’t even have to speak with a real person since, when it comes to individuals, if you owe $50,000 or less in combined individual income tax, penalties and interest, you can apply for an installment agreement online.
To apply online, you’ll need:
- Name and address as they appear on your most recently filed tax return
- E-mail address
- Date of birth
- Filing status (single, head of household, married filing jointly, married filing separately, or qualifying widower)
- Social Security Number (SSN) or Individual Tax Identification Number (ITIN)
Once you complete your online application, you’ll receive immediate notification of whether your payment plan has been approved.
You can also apply by mail by using form 9465, Installment Agreement Request (downloads as a pdf) or by phone (call the number on your bill). Those approvals may take a little longer.
Keep in mind that it’s significantly cheaper if you sign up online (the fee is just $31) – and even less expensive if you agree to pay by direct debit. But that works out okay since, for individuals, balances over $25,000 must be paid by direct debit (otherwise, you can pay by direct pay, debit card, credit card, check or money order).
If you can’t afford the fee to apply and your income is at or below established levels, based on the Department of Health and Human Services poverty guidelines, you pay a reduced user fee. If the IRS system identifies you as low income, the agreement will automatically reflect the reduced user fee.
You must file all of your tax returns before you apply. The IRS will charge you interest while you’re paying your bill and may file a federal tax lien until you pay in full (more on liens here). The IRS may also seize your tax refund while you’re in repayment – but you already knew that.
If you owe more than $50,000 or your taxes are other than individual income taxes, the rules are a bit different, so check with the IRS. There’s one quick caveat: If you are a sole proprietor or independent contractor, apply for a payment plan as an individual.
For your taxes from A to Z, here’s the rest of the series: