A long-term payment plan, also known as an installment agreement, is an option available to taxpayers who are unable to pay their tax bill in full. This plan allows taxpayers to pay their taxes over a longer period of time, typically up to 72 months, depending on the amount owed.
The installment agreement option is available to individuals, businesses, and certain types of estates and trusts. To qualify for this payment plan, taxpayers must have filed all their tax returns and be current with their tax obligations.
When setting up an installment agreement, taxpayers must provide financial information to the IRS to determine the amount of their monthly payment. The monthly payment amount is based on the amount of tax owed and the taxpayer`s ability to pay. The IRS will also charge interest and penalties on the unpaid balance until it is paid in full.
The IRS offers two types of installment agreements: streamlined and non-streamlined. Streamlined agreements are for taxpayers who owe less than $50,000 and can pay the balance within 72 months. Non-streamlined agreements are for taxpayers who owe more than $50,000 or need more than 72 months to pay.
When setting up a long-term payment plan, taxpayers should be aware of the following:
1. Fees: The IRS charges a fee to set up an installment agreement, and this fee increases if the taxpayer chooses a non-streamlined agreement.
2. Default: If a taxpayer misses a payment or fails to pay the full amount owed, the IRS may terminate the plan and take collection action.
3. Credit impact: While an installment agreement can help taxpayers avoid tax liens and levies, it can also impact their credit score.
4. Interest and penalties: The IRS charges interest and penalties on the unpaid balance until it is paid in full, which can increase the total amount owed.
In conclusion, a long-term payment plan can be a useful option for taxpayers who are unable to pay their tax bill in full. However, taxpayers should carefully consider the fees, potential default, credit impact, and interest and penalties before opting for this payment plan. Taxpayers who are unsure whether an installment agreement is right for them should consult with a tax professional or the IRS to discuss their options.