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IRS Installment Agreement Basics

November 13, 2014

An installment agreement is an IRS tax debt payment plan that allows taxpayers to pay their debt in installments. Taxpayers do not have to have the ability to pay their back taxes in full to qualify for an Installment Agreement. The IRS also offers installment agreements that accommodate a taxpayer’s financial situation.

Eligibility Requirements

There are many kinds of installment agreements; each designed to suit taxpayers’ different payment needs. Every installment agreement has certain qualifying factors. To determine the ability to pay, the IRS reviews the taxpayer’s financial situation. For tax debt amounts of $10,000 or less, the IRS does not require a financial statement to determine ability to pay.

The IRS evaluates the income, assets, and expenditures of a taxpayer to design a comfortable and realistic payment agreement. For larger tax debt amounts of $50,000 or more, the IRS requires a financial statement to determine the payment that a taxpayer will make each month.

In order to qualify for an Installment Agreement, the taxpayer must have filed all previous tax returns. After qualifying, any tax refunds are applied to the tax debt until the entire balance is paid. If a monthly installment cannot be paid, taxpayers should immediately contact the IRS. Following non-payment of an installment, the IRS terminates the agreement.

IRS Fresh Start

To make it easier for individuals to pay their tax debt easily under an Installment Agreement, the IRS introduced the Fresh Start initiative. With this, people with tax debts of up to $50,000 can repay it through monthly direct debit payments for up to 72 months. The IRS may require some financial information from the applicant to determine eligibility. For tax debts of more than $50,000, the IRS may ask for a Collection Information Statement, Form 433-A, or 433-F.

It is important to remember that the IRS charges penalties and interest each month on the total tax debt amount. The amount of penalties charged per month is 0.5 percent. Both penalties and interest can substantially increase the amount that is ultimately paid.

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