How Do I Set Up an IRS Payment Plan?

on June 12, 2012

The management of delinquent taxes brings both good and bad news. The bad news is that taxes are owed and the IRS has a myriad of ways to collect them from you. Anyone who has incurred unpaid IRS tax obligations must be proactive since these delinquencies do not go away on their own. Don’t stop opening the mail or answering the phone and don’t hide if the doorbell rings. The good news is that the IRS will almost always set up a reasonable payment plan to take care of unpaid liabilities.

The IRS likes paying customers and those that come forward and explain their financial difficulties will most times be treated with courtesy and respect. A quick visit to will list the proper 800 number to call. Those savvy taxpayers who can easily handle their own financial affairs and negotiations may choose to make the call and fix the problem themselves. Others, who may actually fear contact with the IRS, may wish to seek out the services of a reputable CPA or even a tax lawyer. Remember, accountants and lawyers charge money–sometimes lots of it– for their services. With proper understanding of IRS procedures, it’s not difficult for an individual to set up a payment plan that works for both sides without the help of CPAs or attorneys.

In addition to its amenity for those who come forward to pay, the IRS needs to know that whatever caused the tax problem is not likely to re-occur. If a small business, for example, has had a problem paying 941 payroll taxes on a timely basis, the IRS will want to make sure that current payroll taxes are being deposited on time, and that no future delinquencies will appear. If an individual has delinquent personal taxes, the IRS will want assurance and proof that this year’s tax amounts are being properly withheld so that the situation does not repeat itself.

Since 2008, the IRS has relaxed requirements and expanded possibilities for payment arrangements. The most refreshing change has been the IRS streamlined repayment plan. When this plan surfaced, anyone who owed $25,000 or less in taxes to the IRS was allowed to merely divide that amount over 60 months and make timely payments. A phone call to the IRS or even the completion of an online form could initiate the process. Since the Great Recession of 2008, the IRS has actually relaxed and expanded this plan and now, anyone who owes less than $50,000 can stretch out a repayment plan for up to 72 months.

All of this good news does come with a few caveats, however. Those who have put all of their IRS correspondence in the don’t open box may find that they have been awarded a Federal Tax Lien. This situation can cause instant credit score death and should be avoided if at all possible. The IRS will not necessarily file a lien if contacted promptly, although it is their right to do so when they feel they have to protect their claim to tax dollars. Also remember that a payment plan causes one to correspond monthly with the IRS. Unlike those who have no problems and merely file their taxes once a year, delinquent taxpayers must make monthly payments. One false move and the deal is off–a situation that will initiate a slew of certified letters that will warn of garnishments and tax levies.

The streamlined repayment plan has been a great option for many taxpayers, but for others, it may not work. Some persons just cannot come up with enough money to make the monthly payments. $30,000 over 72 months costs $416 per month not including penalties and interest. What if a taxpayer can only afford $150 per month on a $30,000 debt? Amazingly, there’s an answer to this dilemma also.

The IRS will carefully listen to individual tax problems and they do have the ability to set lower payments, although this will make taxpayers ineligible for the streamlined plan. Again, however, just a call to the IRS is all that is necessary to start this process. There will be more questions to answer and more forms to complete with this type of request, but there are documented instances where taxpayers with large liabilities have achieved payment arrangements of as little as $50 per month.

IRS debt can be managed. With careful research along with patience and determination, almost anyone can successfully set up a payment plan. Just be honest and make on-time monthly payments, and in a few years, IRS debt can be gone.

Found in: Taxes
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