Should You Ask The IRS For A Payment Plan?

Sometimes you might get saddled with a tax debt that’s beyond your ability to pay. The IRS prefers that you pay your debts in a one-time payment, but there are instances when this just isn’t possible. If you’re facing a large amount of tax debt, you might consider paying it through a payment plan. A payment plan (also known as an installment agreement) is an agreement between you and the IRS wherein you undertake to pay the debt in increments for a longer period. Think of it as a loan you’re paying off. 

A payment plan has the advantage of being a solid tax relief option, but it also has drawbacks. For one thing, penalties and interest will continue to accrue even when you’re making regular payments. If you owe a large amount of tax debt, it might also be more difficult (but not impossible) for you to apply for a payment plan.  

Factors To Consider 

Chief among the factors that will be considered when you apply for a payment plan is the amount of debt you owe the IRS. If the debt is $50,000 or less, the IRS is more likely to approve your request to pay through a payment plan. In fact, if you owe the IRS less than $50,000 in back taxes, penalties, and interest, and you filed all returns, you can apply for a long-term payment plan online. If the debt, on the other hand, is more than $50,000, expect the IRS to be stricter. They will typically ask for more information regarding your finances, and they may deny your application for a payment plan.  

On a personal note, you should also go through your finances and make sure that you can make payments if you choose to apply for a payment plan. If you barely make enough for basic necessities, then other tax relief options such as an offer in compromise or currently non-collectible may be better for you.  

Pros and Cons  

Like every other tax relief option, payment plans have their advantages and drawbacks. The good thing about it is you’ll deflect the possibility of levies and liens from the IRS. Levies and liens are the IRS’ way of forcing a taxpayer to address his tax delinquencies. A lien is a claim placed by the IRS on property owned by the taxpayer. It can have negative consequences on your tax credit. A levy is when the IRS takes property from the taxpayer to pay their tax debt. When a taxpayer and the IRS have already agreed on a tax relief option, there’s little to no chance that the IRS will come after you with liens and levies.  

There are also some drawbacks to paying your tax delinquency through a payment plan. For one, penalties and interest will continue to accrue. This means that in the long run, you might end up paying more.  

So How Long Can I Pay?  

The duration of your payment will depend on the kind of payment plan you choose. The IRS currently offers two payment plans options. The first is a short-term payment plan, which must be paid in full within one hundred twenty (120) days. The second is a long-term payment plan, which must be paid within seventy-two (72) months or approximately six years. It’s worth noting that the amount of debt you owe and the kind of payment plan you chose aren’t always proportional. For example, if you have sufficient resources, you can choose to pay a large amount of debt in a shorter time. Conversely, you can also pay a smaller amount of debt for a longer time. It all depends on how much you can afford to pay.