If you find yourself getting hit with a big tax bill and no way to pay it, don’t worry, the IRS actually gives you options for paying your tax bill over time. Most people will have no problem paying their taxes using an installment agreement from the IRS. Qualifying is simple, and everything can be done online.For some, they may need to file IRS Form 9465 to set up the installment agreement. Who should and shouldn’t file Form 9465 is what this article is about.If this sounds scary or confusing, you may want to speak to a professional. Check out Solvable and get connected to tax debt experts.
If you owe less than $50,000 on your taxes, you don’t need to file Form 9465. The formal conditions from the IRS website to qualify for an installment agreement without filing Form 9465 are the following:You can go to the IRS website to set up your installment agreement. The URL is https://www.irs.gov/payments/online-payment-agreement-application.Just because you file your installment application doesn’t mean it will be approved. However, if you owe less than $10,000 in taxes, you’re eligible for a guaranteed installment agreement.There are three options for paying your tax bill. Fees are listed with each:If you can’t pay your bill within 120 days, you’ll need to set up an installment agreement using the long-term payment plan option. The long-term installment agreement is also known as the streamlined installment agreement. On this plan, you have 72 months or 6 years to pay your tax bill.As you can see from the above fees, an installment agreement isn’t free. In fact, it’s a fairly expensive arrangement.
Installment agreement fees start with a $149 setup fee. That fee can be cut to only $31 by choosing the direct debit payment option.Next, come penalties and interest. The “failure-to-pay penalty” is 0.5% per month. To put that into perspective, that’s an interest rate of 6%. But once you enter an agreement, it comes down to 0.25% per month or 3% annualized.From the IRS website, “The interest rate is determined quarterly and is the federal short-term rate plus 3 percent.” The current quarterly interest rate can be found here.When you send in a payment, or rather when the IRS drafts a payment, it is applied in this order:Note that the IRS has already proposed a fee increase for installment agreements. This increase would bring the setup fee to $225 and the direct debit option to $107.
From the IRS website, file Form 9465 if you are one:
There are six types of installment agreements:
Once you recognize that your tax bill is too large to be paid in full or within 120 days, you might consider an installment plan. It’s important to set up the plan as quickly as possible to reduce the cost of additional penalties.The last thing you want to do is continue letting your taxes go overdue. The IRS is not an organization that you want coming after you.If you don’t know where to start, check out Solvable and see if you can find professional help for your tax issues.