Annually, thousands of Americans file their tax returns and realize that they are required to pay more income tax than immediately affordable. More owe back taxes and lack the idea on how to pay these amounts. Fortunately, the IRS has constituted a program allowing taxpayers to pay taxes in monthly installments in lieu of lump-sum amounts.
The Form 9465
The first step in implementing any installment agreement is to complete and submit an installment agreement application by filling IRS Form 9465. This form is normally attached to the tax return at the time of filing, but may be filed by itself at any time. Taxpayers owing less than $25,000 may instead, complete an online payment agreement application or call 1-800-829-1040. Those owing more are required to also submit Form 433-F, the Collection Information Statement along with Form 9465, manually.
Eligibility Criteria
Any taxpayer owing up to $10,000 will have their application automatically approved by the IRS, provided the taxpayer has not entered into prior similar arrangements or filed a later return within the past five years. The taxpayer must also have the ability to pay the entire outstanding balance within three years. Defaulters may petition for reinstatement, but cannot ignore previous agreements by entering into new ones. Repayments are required to be completed within sixty months and taxpayers ought to have filed all past returns to qualify for the agreement. Those owing amounts in excess of $25,000 are required to include Form 433-F.
The Following are Ineligible:
- Individuals already making payments under a preexisting installment agreement with the IRS
- Those in bankruptcy
- Those wishing to make an Offer in Compromise.
The above must contact the IRS at 1-800-829-1040 if they intend to make arrangements for additional payments.
Benefits:
It gives taxpayers time to pay off federal taxes in an orderly manner and leads to cessation of efforts by the IRS or private collection agencies if terms are honored.
The eligible individuals can get a six month extension for filing returns and paying bills if they are under certain financial hardships.
Drawbacks:
The IRS charges fees to establish installment plans: a one-time set up fee of $105 is charged for new agreements ($52 for those wishing to have payments directly debited from their accounts). A reduced fee of $43 is charged for individuals with income below a certain amount: individuals are furnished with instructions on how to apply. A $45 fee is charged for reinstatement of a lapsed agreement.
In addition, interests and penalties are applied to any unpaid balances until it is paid off.
Payment Modes:
Taxpayers may send personal or cashier’s checks, money orders, debit money directly from their bank accounts, or pay by credit card. The electronic federal tax payment system may also be used upon registration.
Payments may be made between the 1st and 28th of each month. If payment is not made by the stipulated time, the amount is considered to be in default.
Conclusion:
The installment agreement provides a means of paying tax in a convenient and painless way. Penalties and interest add up over time and individuals who default on their tax payments become subject to the IRS collection process if they do not make prior arrangements with the IRS to make installment payments.
