How to Get On a Payment Plan With the IRS, And Why They Have Reasonably Low Interest Rates

How to get on a payment plan with the IRS for outstanding tax debt is actually quite simple. At the end of the day, the IRS is really a collections agency, they just want their money, and if they can get you on a payment plan, make it so that you actually pay them, and charge you a bit of interest at the same time, it is in their best interest to do this. Say you have $10,000 in outstanding tax debt that you owe the IRS. Not a great place to be in here, but you do have options. First step would be to try and get the best paying job possible if you do not already have one, past this, what you’ll want to do is either:

Pay the IRS in full out of pocket

Pay with a Credit Card (there are upsides to just having a credit card bill instead of IRS debt, but also some major downsides)

File form 9465 with the IRS, “Installment Agreement Request” or call them on the phone and apply this way. This will put a pause on the IRS from their ability to levy assets and hurt your credit score for a certain period of time, and puts you on a payment plan with them. Filing this form with the IRS is essentially the administrative equivalent of saying “hey I want to pay my taxes, I filed my tax return, I am just strapped for cash right now. Put me on a loan to make this payment, charge me some interest, and I’ll get you the money as soon as I can.” This is America, and one thing that I have learned in America is that taking out a loan to kick an expense down the road is always an option, and in fact it is always the most readily available option.

The IRS payment plan is typically only going to charge you something like 1/2% of interest every month, for a total of about 6% interest per year, on your debt that you owe. And while you ideally don’t want to have any debt whatsoever, it is true that there is some debt that is better than others, at least in this case you save about 75% of your total interest paid via if you had the debt on a credit card.

And so, in this blog post, let’s take a look at how to get on a payment plan with the IRS, let’s look at what their interest rates are, how you can use the first time abatement to possibly reduce your tax bill even more, and for what getting a settlement looks like with the IRS if you are on your last leg financially. For more details and information on all things business and finance, read on or subscribe to our blog for additional details and information.

How to Get On A Payment Plan With the IRS? What An Installment Agreement Typically Looks Like

You file the form, you get on the installment agreement plan, and they typically have you pay as much as you can, or the amount over like a 72 month interval. So say you owe the IRS $30,000, they would allow you to make payments in the amount of just $416.67 every month plus interest. At this point if you still cannot pay, I would almost highly recommend using your credit card, the IRS may revoke the plan entirely if you miss a single payment, thereby requesting the full balance be due in its entirety. In terms of IRS debt, it is a lower interest rate, but is worth doing what you need to do in order to pull out of it.

How to Fill Out Form 9465

This is the initial form to request a payment plan with the IRS. You fill it out a follows:

name, SSN and personal information in the first section.

Outstanding tax debt in the middle

bank account information towards the bottom

Google search “IRS form 9465” and you’ll see what I mean here. The form is only about 2 pages long and it is very easy to fill out and mail into the IRS. It is also able to be E-Filed.

How to Get a First Time Abatement On Late Tax Return Filings

If the case is that you owe $30,000 in unpaid tax debt because say you were late on filing your 1065 for 2 years, and you owe say $5,000 in late filing penalties, you may be able to get a first time abatement exemption. If it is your first error, they generally give you a first shot gimme at this, and basically would waive the penalty. If this brings you tax debt down to just $25,000 and you can’t pay it, you may only be looking at $385 a month or so in annual payments over 72 months. Not great but to get rid of tax debt for basically just a car payment every month, it could definitely be worse.

How to Qualify For an Offer In Compromise On Your Outstanding Tax Liability

An offer in compromise is a bit more challenging to negotiate with the IRS. The typical process for this is that you would first see if you are eligible for this via the IRS qualifier tool, and then the IRS looks at 4 main factors:

Ability to pay

Income

Expenses

Asset Equity

If it shows that you are basically broke and that you have no income at all, then the IRS negotiates a settlement offer with you so that they can be paid and move on. Their resources are better spent going after bigger fish if this is your problem at the end of the day. This is sort of a last resort if you are in dire financial straits.

Final Thoughts On How to Get On A Payment Plan With the IRS & What An Installment Agreement Would Typically Look Like

And there you have it, my basic tax compliance guide from a hopefully future CPA! Hope you enjoyed reading, be sure to subscribe to our blog and comment down below for additional details and information.

Cheers!

*Inflation Hedging.com

Sources:

https://www.treasury.gov/tigta/auditreports/2020reports/202010035fr.pdf

https://www.bankrate.com/banking/cds/cd-rates/

https://money.cnn.com/data/markets/

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