Setting up a Payment Plan with the IRS: What That Means for Your Taxes

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You’re still on the hook for your taxes, whether you pay them on time or not. 

When you fail to pay on time, however, there are some options you can exercise that’ll help you out. You can set up payment plans that will allow you to pay your tax bill month by month. 

If you are trying to get the most out of your tax situation, the tips below will help you set up whichever payment plan best suits your needs. 

1. Your Taxes Are Due on the Deadline No Matter What

Without exception, taxes are due on or around April 15 each year. 

When you fail to do this, a payment plan can help, but you will still need to answer for any penalties that come about as a result. You can expect to get a notice from the IRS in the mail laying out all of the fees that you owe, and requesting the payment in full. 

It’s important that you stay up to date with tax laws so that you’re avoiding penalties and problems. While a payment plan can help you out, it should always be the last course of action to look into, rather than casually paying late since you know that you can always set up an installment agreement. 

2. File Your Taxes, Even if You Can’t Pay on Time

While you might not be able to afford your taxes all at once, there’s no reason for not filing. 

When you file you’ll at least show the IRS that you are taking the matter seriously and that you’re aware of what you owe. This way, you also meet the filing deadline, even if you don’t meet the payment deadline. 

By filing, you’ll know exactly how much money you owe and will be able to set up a payment plan based on this amount. You’ll be able to address your taxes however you need to by handling your filing responsibilities upfront. 

3. Pay What You Can

It’s also important that you do your due diligence by chopping your tax bill down even a little bit. 

Pay what you can, even if it’s a small amount. 

Though you’re not necessarily facing serious penalties like tax evasion, you never want to play around when it comes to getting on the IRS’ bad side. When you are able to pay a portion of your bill, it shows the IRS that you are serious about handling your debt and that you aren’t trying to avoid it. 

It will also set the tone for any sort of installment agreement that you end up arranging and will allow you to get more favorable rates once you put the agreement in motion. 

4. Look Into Setting Up an Installment Agreement For Your Taxes

Once you know what you owe, you have the green light for filing an installment agreement on your terms. 

With these agreements, you will be paying your tax bill down on a month by month basis, instead of all at once. When it’s time to set up the agreement, use your current filing and apply for an agreement by letting the IRS know how much you can afford each month. 

You’ll need to let them know things like how much you earn each pay period, where you work and other points of information. 

The IRS will either accept the monthly payment amount that you are claiming, or will counter with what they’re willing to offer you. Make sure that you file for this agreement as early as possible so that you are able to get the best deal possible and set yourself up to pay your tax bill little by little, without letting this debt pile up. 

5. Know That You’ll Still Get Hit With a Tax Penalty

Just because you set up a payment arrangement doesn’t mean that you are in the clear. Because you’re filing late, you will still get hit with a penalty. 

When you fail to pay you can get hit with a tax penalty of 5 percent of what you owe. 

Rather than being clear of this penalty because you signed a payment arrangement, it’ll be added to your tax bill and split into your monthly payments. When you get your monthly statements, it will break down exactly what you owe in principal, in addition to interest and late payment fees that are tacked on. 

Stay aware of these line items, because you’ll have a chance to pick and choose which you are paying anytime that you submit an installment agreement payment. 

6. Tailor Your Payment Arrangement to Something That You Can Afford Each Month

Many people get emotional about trying to pay off their taxes, to the point that they set themselves up for an agreement that they can’t afford. 

Be patient with your installment agreement so that you set yourself up for success in this regard. 

Keep your income in mind when setting up any sort of payment arrangement for your taxes. 

Rather than only accounting for what you owe for your taxes, you need to make sure that you can also afford your housing, utility bills, food, and incidentals. Don’t put yourself in a bind with your living expenses just to get your tax bill under control. 

Do everything that you can to get an affordable payment arrangement and you will be well taken care of. 

7. Keep in Mind That Interest Will Keep Adding Up

It’s not just about what you owe in principal, you will also have to contend with interest as well. 

The longer you take to pay off your tax bill, the bigger your tax bill will grow. The interest won’t stop adding up until you complete your last payment, so you should shoot to pay off your taxes in a timeframe that helps to minimize this inflation. 

Most importantly, don’t limit yourself to your monthly payment amount. While you might have a monthly installment agreement payment of between $100 and $200, you’ll be paying that down for a long time depending on how much you owe in total. 

If your finances pick up and you’re able to take bigger chunks out of your tax bill, definitely give yourself the opportunity to do that. This way, you will be off the hook your tax debt without letting it pile up to the point that it gets out of control. 

8. You’ll Need to Go Through a Third-Party Agency to Process Your Tax Payments

You need to remember that you’ll be processing all of your payments through a third-party provider, rather than directly to the IRS. 

As soon as you file your return, you’ll be directed to either pay your bill in full or visit the IRS’ site to set up an installment agreement. On the IRS’ installment agreement page, you’ll see that there are several third-party companies that will take your payment.

The benefit of this is that you can choose the service that you feel comfortable with. Look all of them up to see their reputation, and be sure that they are Better Business Bureau (BBB) certified. 

When you do your research into the company, you will also see that they have their own set of rules and fees for each transaction. These fees will typically differ based on whether you decide to pay with a credit or debit card, or whether you want to do an electronic funds transfer (EFT). 

Take the time to do research every aspect of the agreement and also give your e-mail address so that you can get a copy of each payment. Save these payments for your records so that you are able to keep track and get confirmation codes each time. 

This way, if there is ever a question about whether or not you made your payment, you will have the records to back you. 

9. It’s Best to Set Up an Automated Tax Payment

Another benefit of working with a third-party company is that they can set you up with an automatic payment that you don’t even have to think about. 

You can set the date of each month that you feel comfortable with, and from there, it’ll be taken out of your bank account without you ever having to manually log in and handle it yourself. 

If you know that the payment is coming out of your account without you having to make an effort, you will be able to set it and forget it, without having to remember to log in and do it yourself. 

Many payment processors will also offer you a discount for setting up automatic payments as opposed to handling it yourself. 

10. Be Sure That You Hit Your Payments Regularly and Keep Up With Your Bills

Whether you decide to set up automatic payments or log in and do it yourself, it’s your responsibility to keep up with your bills. 

If you keep missing payments, you’ll default on your installment agreement and end up right back at square one. If this happens, the IRS will be far less lenient on your tax debt and may require you to handle the whole payment all at once. 

This is never an ideal situation, so set reminders to address payments manually, or always make sure that you have enough money in your bank account if you are scheduling an automatic payment each month. 

11. Seek a Settlement or Abatement When Possible

There’s always wiggle room to get your tax bill lowered as well. 

You can set up an offer in compromise that lets you settle your tax bill for less money than you owe. This way, you will have the opportunity to address your tax debt without being on the hook for amounts that will take you several years to pay off. 

Don’t hesitate to apply for this, because in many situations, the IRS is happy to take whatever they can get if it seems like it’ll be difficult or impossible for you to pay what you actually owe anytime soon. 

You can also apply for an abatement, which is forgiveness for additional tax penalties you were charged. It doesn’t hurt to try, so always take the chance to fill out an application. 

12. Keep Up With Your Upcoming Tax Payments

Now that you have the assistance of an installment agreement payment, it’s your job to make sure that you never end up in this situation again. 

Be sure that at this time next year, you’re able to pay your tax debt in full and without needing to sign up for another payment plan. You can help yourself out by setting up quarterly tax payments, so you don’t have to pay it all at once during the tax deadline. 

If you need some legal assistance with fighting fees that you find unfair, get the help of a tax lawyer. 

You might pay between about $150 and $450 and up in lawyer fees, but it’ll be definitely worth every cent once you get your tax situation straightened out. 

Dispute any discrepancies that you might have with your taxes and stay up to date with your finances and accounting on a regular basis. 

Set Up Payment Plans That Work For You 

Simply put, payment plans are what you need to keep up with your tax debt in the event that you can’t afford to pay all at once. This helps you satisfy your bills while buying you more time to not find yourself in an even deeper hole. 

Take some time to contact our tax attorneys when you need any assistance. 

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