Out of all the IRS tax debt payment methods, an Installment Agreement is the most widely chosen by taxpayers. The reason for it is that most taxpayers with tax debt have the financial capability of paying back their tax debt, if not in a lump sum, then with monthly payments.
Under an Installment Agreement, taxpayers can pay their back taxes with monthly installments over an agreed period of time. The IRS decides the payment amount after considering the financial capability of the taxpayer, along with other factors. Taxpayers pay an initial amount after which they pay in fixed monthly installments until the tax debt is paid in full.
An Installment Agreement allows a taxpayer a time period to pay back the full tax debt. However, because it is paid over time, the debt increases due to penalties and interest. The IRS charges interest on any tax debt that is yet to be paid. For taxpayers who cannot afford to pay the full tax debt amount in a lump sum, an Installment Agreement is the best option.
To save money on interest, it is advisable for taxpayers to pay as much as they can in the initial payment. The minimum amount a taxpayer can pay in a monthly installment is $25, but there is no limit to the maximum amount that can be paid.
To apply for an Installment Agreement, all tax returns must be filed. Even though taxpayers can apply for any tax debt payment plan on their own, it is best to consult with or hire tax help to understand the requirements and fine print for each of the various debt payment plans. Tax professionals also assist taxpayers in minimizing or removing penalties and/or the overall debt amount.
Taxpayers who can pay back their tax debt over a period of time should consider applying for an Installment Agreement.