Your 2014 federal income taxes are done but you owe a lot more than you thought you would. In fact, you don’t think that you can scrap the money together to pay the IRS by April 15, 2015. In that case you might want to consider an Installment Agreement. If you’re approved, you can make payments on your debt. To see if you qualify, you need to complete Form 9465 – Installment Agreement Request.
First, let’s cover the basic rules. You have to have filed all your tax returns. And you can’t add a future debt to your balance. For example, you set up an installment agreement for the balance due on your 2014 tax return and you regularly make your payments. But when you complete your 2015 return, you again have a balance due. This balance due has to be paid off. It can’t be added to your current installment agreement.
Form 9465 is a fairly easy form. It starts with your name (and spouse if filing married joint), address, info on your bank account and job. You then enter the total amount you owe the IRS (this can be from several years), how much you can pay monthly and the date you will pay by each month. There is a second page to be completed if you have defaulted on an installment agreement and owe between $25,000 and $50,000. If you owe more than $50,000 you will also need to complete Form 433-F – Collection Information Statement.
Once they have the form(s), the IRS will review your information and decide if you qualify to pay by installment. Don’t worry. If your balance due is $10,000 or less you may qualify for an automatic installment agreement. There are a few extra rules for the automatic program. You must have filed all your tax returns on time for the last 5 years and not done an installment agreement before. You also have to agree to pay off the debt in 3 years.
Form 9465 can be filed with your tax return or in response to an IRS notice. In fact, they usually send the form when they send a balance due notice.
There are fees involved in an installment agreement. The basic cost is $120 which is added to your balance due. The IRS will reduce the fee to $52 if you agree to have your payments debited from your savings or checking account. You just need to put your account number and bank’s routing number on your Form 9465. For low income taxpayers, you might quality for a fee of $43. The reduced fee must be requested on Form 13844 within 30 days of the notice that IRS has accepted your installment agreement.
If you believe that you can pay the balance off in 10 days, there is no fee just the interest and penalties on the tax. If you can pay the balance off in a few monthly payments (generally under 120 days), the IRS will waive their fee and you will just have to pay the interest and penalties
While applying for an installment agreement is not difficult, the Service has worked to improve the process with their Online Payment Agreements. The idea is to provide an easy way to set-up an installment agreement, cut administrative cost and hopefully reduce the default rate. It allows you, or your authorized representative, to see if you qualify and apply for the agreement. It even has a calculator to help you figure out payment options.
Who qualifies to use the Online Payment Agreement? The IRS estimates that 95% of taxpayers will be eligible to use the online method. This includes individuals with outstanding balance dues and taxpayers who have a balance due on this year’s tax return. Also, taxpayers with current installment agreements can make changes to agreements which are already in effect with the IRS. Taxpayers must owe less than $50,000 in total. That includes all taxes, interest and penalties. And of course, all applicants must have filed all tax returns.
If you are having your personal representative fill out the installment agreement for you, there has to be a valid Power of Attorney on file with the IRS naming them as your representative. If there is more than one year’s debt in the balance you are working with, the Form 2848 must include all years included in that debt.
An installment agreement can help you pay your tax debt over time but understand that interest and penalties will continue to grow as you pay. The quicker you can pay the IRS off, the less money it will actually cost you.