If you cannot afford to pay your taxes in full, then there are options available to you to avoid tax debt or tax controversy. Raichelson Law, P.C. discusses how you can set up an installment agreement with the IRS and what a payment plan entails for you as an individual.
What is an installment agreement?
As a taxpayer, you have the option of applying for an installment agreement with the IRS if you can't pay your taxes. Installment agreements are available to those who cannot afford to pay their full tax amount within 120 days of the due date. Not all will qualify for an installment agreement; your eligibility depends on your specific situation.
The IRS provides information for individual payment plans to help you determine if an installment agreement is the right fit for you. Your tax attorney can also apply for you to alleviate the stress of gathering the proper paperwork and the headache of filing. They can also offer you professional guidance to help you choose the best route for your financial situation.
You can review or update your payment plan using the IRS's online tool. There are limitations to what you can change when you utilize the tool. If you need to do more than change your monthly payment amount or due date, then you will have to contact them directly.
What are the fees and interest rates on installment agreements?
The only fees you are responsible for when setting up an installment agreement for a short-term payment plan (less than 120 days of repayment) are penalties and interest accrued on your account until you repay the amount owed. There is a setup fee charge for long-term payment plans (more than 120 days of repayment) that will vary based on income. You are also responsible for any penalties and interest until you pay off your balance. Note that there are small fees associated with credit card payments.
According to the IRS, the interest rate on unpaid taxes “…is determined quarterly and is the federal short-term rate plus 3 percent. Interest compounds daily.” The interest rates are significantly lower than credit cards but can easily add up over time. It is crucial to ensure you can commit to a monthly payment when setting up an installment agreement. Defaulting on your payments could have serious consequences.
What happens if I default on my payments?
Installment agreements are not loans, so they will not affect your credit score. It is critical to take into consideration that your score can be impacted if you default on your payments. Then, you run the risk of getting a federal tax lien or tax levy. Working with a tax attorney can help you make an informed decision based on your specific financial situation.
Are you having trouble paying your taxes? Raichelson Law, P.C. offers over 20 years of experience in tax debt and tax controversy to help take the burden of debt off your shoulders. Contact us today for a free consultation to learn more about how our tax attorneys can help you.