If you are experiencing tax debt and owe money to the IRS, you have the option of creating a payment plan, also called an installment agreement; but can you have 2 installment agreements with the IRS?
Can you have 2 installment agreements with the IRS? Not exactly. When you owe taxes, the IRS allows you to reduce your penalties and interest rate while paying down your balance over time via an installment agreement. As long as you adhere to the terms of the agreement, you can avoid further collection actions and work your way through your debt at a reasonable pace.
If you’ve realized that, due to financial constraints, you’re unable to pay your taxes for a subsequent year, you can choose to fold your debt into your existing installment agreement.
To reiterate – you cannot have two installment agreements with the IRS. However, you can pay off more than one tax debt through your existing installment payment.
When you owe the government money, the IRS marks a deficit on your tax account. Further debt accrued simply increases that balance due. Your installment payment can be altered to reflect a change in your balance. You can request this change by contacting the IRS directly, through your local IRS office, with the help of a professional IRS tax attorney or by calling 1-800-829-7650. Alternatively, you can fill out Form 9465 with the requested relevant information.
How Do IRS Installment Agreements Work?
Tax debt is a severe problem. The IRS takes its duty to collect taxes very seriously – and has the means to take priority over other creditors when it seeks to collect what is due.
As a taxpayer, you have an obligation to pay your taxes on time. Failure to do so can result in financial penalties and accruing interest. Intentionally avoiding tax payments can even be a crime.
As your tax debt grows, the IRS will continue to take increasingly drastic measures to try and collect what is owed.
While you cannot have 2 installment agreements with the IRS, a payment plan allows you to avoid further collection actions and work on paying off your debt. There are two ways to enter into an installment agreement with the IRS:
1. Short-term payment plan:
Any payment plan that stipulates total payment within 180 days, usually in the form of one or more lump sums.
2. Long-term payment plan:
A monthly installment payment plan of any length longer than 180 days (up until the debt is paid or hits its statute of limitations).
An installment agreement can be set up entirely online or via mail or phone. You can also set up an installment agreement in person. Under most circumstances, it is cheapest to set up an installment agreement electronically. Currently, however, short-term payment plans can only be set up via mail or phone.
There are limits to how hefty a taxpayer’s debt can be for certain payment plans. For example, taxpayers with a total tax debt exceeding $50,000 do not have the option of paying their debt through a monthly payment plan. It is also worth noting that tax balances over $25,000 must be paid via Direct Debit.
Note that there are a few stringent requirements for entering into a payment plan, and there are several things you should note if you wish to avoid defaulting.
Installment Agreement Requirements
One of the most important requirements is that you are completely up to date with your tax returns. Even if you can’t pay your taxes, the IRS will not accept an installment agreement unless you’re caught up with all of your returns, so it is imperative that you do not have any unfiled tax returns. The IRS will check at least the last three years, and generally up to six years, to determine if you’ve been keeping up with your returns and are eligible for an installment agreement.
Being late or accruing an additional tax debt without requesting that it be added to your previous tax balance can lead to a default. Setup fees can be waived if you qualify as a low-income taxpayer. Other tips include:
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- Pay your minimum monthly payments when they’re due.
- File your subsequent returns on time for the duration of the installment plan.
- Note that all your future tax refunds will automatically go towards paying off your debt until the debt is paid (stimulus checks or Economic Impact Payments are not a tax refund, even though they are sent out via the Treasury and IRS).
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What if I Don’t Pay?
A default in a payment plan means the IRS will continue to levy collection actions against you. These range from a federal tax lien (a public notice letting the government take priority over all current and future creditors, making it harder to seek financing or loans) to a levy on your assets or wages.
What if I Can’t Pay?
If you cannot afford to pay off the entire debt over the course of its lifetime (ten years from the date of assessment on your initial notice, plus tolling periods), the IRS may consider an Offer in Compromise.
Considering an Offer in Compromise
An Offer in Compromise is a payment plan specifically built to allow you to avoid financial hardship while dedicating nearly all non-essential assets and income to your debt. The IRS takes assessing these offers very seriously and will not accept an offer that they consider to be too low based on the information you provide them.
If you do consider an Offer in Compromise, it is in your best interest to speak to a tax professional. The IRS will not levy collection actions against you while evaluating your offer, but your debt will continue to accrue penalties and interest. Put your best foot forward by working with an experienced professional to set up an offer.
The IRS does not leave much room for interpretation when it comes to tax debts – you will have to pay, sooner or later, and always to the best of your abilities.
An experienced tax professional can navigate the IRS’s rules, statutes, and payment options to help you find the best way to eliminate your tax debt. Take the guesswork out of paying off your debt by speaking with a tax professional today.