How an Installment Agreement With The IRS Works

Paying taxes every year to the IRS is something we have to do if we end up owing money.

However, a lot of people don’t pay what they owe.

The reality is IRS has an authority to file penalties against those tax offenders or those who missed filing the returns on time.

The taxpayers who are keen on settling all the dues in time might check the website of IRS and find the provisions of paying the money owed within the required duration.

There are easy to pay payment plans to choose to pay these dues.

The IRS or any taxation or accounting firm always recommends people to keep track of their tax amounts to pay them in time.

Whether it is paying the penalties or interest amounts, there are different methods to pay these to the government.

For instance, there is an Installment Agreement – a plan appealing to many across the country.

As per this agreement, the tax defaulter will have an option to consult and choose the method to pay back the penalties and interests in a renewed deadline.

What is an Installment Agreement?

The problem with many people being completely unaware of how much to pay back is due to their lack of knowledge.

A gift tax is something that many people choose to ignore.

Cash gifts amounting above $15000 will amount to fall under tax slab.

However, it also depends on who is paying the tax.

Many times, the sender or a giver of the gift may have already paid the tax.

On the other hand, the giver may not even be aware of the tax he will have to pay, therefore; the IRS will collect the same from the recipient.

It is ideal for the taxpayers to check the official website of the IRS and conduct basic math regarding the amount he or she has to pay after the Installment Agreement.

The IRS has amendments and new tax relief rules, and the taxpayer must check the most recent information.

As per the latest amendment, The IRS will return a user fee to the taxpayers below a certain gross yearly income range.

This is why the Installment Agreement has become one of the most convenient ways of paying back what is owed for the lower-income group.

Those who seek an extension of time to pay the interest of taxes in full can do so by requesting the Form 9465.

Understanding the Tax Extensions

Around 43% of Americans are filing their taxes and tax returns from their homes as per the report of 2016. Thanks to the online payment options this has become a norm.

Likewise, the tax defaulters or those who miss filing their tax returns include business people and even individuals alike.

So they might go for extending their deadlines.

However, the individuals with adjusted gross incomes at or below 250% of the poverty level, the IRS will return the User Fee.

Many tax consultants also advise the taxpayers to go for easier ways to pay these penalties or interest like paying with credit cards or other such methods.

A few essential clauses they will need to remember when requesting a Form 9465 is:

  • The maximum term for an agreement is 72 months.
  • You owe income tax on Form 1040.
  • Who owes employment taxes under the selected form numbers and is related as a sole proprietor business.
  • Who is or may be responsible for Trust Fund Recovery Penalty and others.

There are more criteria that you need to fulfill to qualify and seek the Installment Agreement.

The IRS has announced the interest rates to remain the same in this fourth quarter of 2018.

Who Can Qualify for the Installment Agreement?

Those who:

  • Do not owe taxes amounting or more than $10,000
  • Are not financially capable of paying back the liability when it is due
  • Agree to pay the full amount you owe in 3 years and comply with the tax rules while the agreement is in effect.
  • Have paid all the taxes and dues in time for the last five years. This also includes joint-filing cases of you and your spouse.

Does this mean only individuals do not file for returns or fail to pay taxes?

As per the report by FileLater.com, around 5.5 million businesses every year apply for the extensions.

In short, it is not surprising to come across an individual or a business not paying their income tax or employment tax in time.

What we can learn is that there are ways to make up for this mistake or error of judgment.

In case you can pay back the entire amount in full in 120 days, there is no need to apply for the Installment Agreement.

It costs a fee to set up or process the Installment Agreement.

The IRS decides on who qualifies for the Installment Agreement and who does not.

Based on thorough analysis, they will reply to the approval or rejection of the same.

How Does the Installment Agreement Function?

To start, the IRS will go through a request form you send for seeking the extension of a tax deadline.

Then if they decide you have all the criteria as discussed above, they will surely confirm.

If they find any loopholes and that your request is not justified, they will reject it.

You will come to know of their approval or rejection in 30 days.

However, if you have applied by March 31, you will receive the reply in a little more than 30 days.


There are Installment Agreement user fees additionally charged by the IRS.

These are fees for setting up or establishing this agreement online and or for making or not making the payment by direct debit these tariff rates are diverse, and every taxpayer will need to check it out.

Look for the Reduced User fee, and if you fall under the $250 of the population under the poverty line, you can expect the IRS to ask for only a $43 reduced fee.

However, if the IRS does not ask for it and you are sure to fall under this category, this year, just request the IRS for the same. There is an alternative process to claim for the same too.

How Will Those in the Poverty Line Benefit Now?

As per this year’s IRS announcement and rule, the people earning low income can expect a waiver of the user fee or at least its reimbursement.

This is something to look forward to if you fall into this low-income group and agree to pay the tax using a debit system of payment.

In fact, if in spite of being in the low-income group, you try to pay the taxes and a reduced amount of penalties, you can do so.

The IRS can reduce the charges and other costs remarkably well.

The main reason for the functioning of this Installment Agreement is to encourage timely payment of taxes, diligently, and even filing the returns in time.

Still, considering the fact that over the years, the defaulters are increasing, the IRS has come up with this route.

The IRS, on approval of the Installment Agreement also allows the taxpayers in this low-income group, the option to pay on a monthly installment basis.

This is not a great solution for many, but it is a useful alternative for those who cannot pay a significant amount.

These small installments are less stressful and even more convenient for those low-income taxpayers.

Payment Methods and Termination of the Installation Agreement

Setting up of the Installation Agreement will cost the taxpayers an amount.

Besides that, once they start paying via a payment method, they will also have an online fee for each method.

The system of going strong about accepting the payments online is already visible in the statistics.

The IRS received 91% of the tax returns filing online and only 9% were on paper.

For instance, on choosing the direct debit, the applicable fee will be $107 with $31 added to the online payment agreement cost.

On selecting the check, money order, or credit card option, the taxpayers will have to pay $225, which includes $149 along with the online payment agreement.

Finally, on selecting the payroll deduction installation agreement, you will need to pay $225.

Those who find by now that they can pay the entire penalty and fine in full without going for the Installation Agreement can terminate it too.

Simply calling a number to the IRS Help can pave a way to terminate this Installation Agreement with ease. You can alternatively request for the same online.

For the Taxpayers’ Convenience

It was becoming more drastic to find American individuals struggling to pay the tax on time.

However, just because the IRS approved your Installation Agreement request does not mean that it cannot terminate or cancel your application.

In case, the taxpayer does not fulfill even one of the many clauses that the IRS has laid down, then IRS will terminate the account at the earliest.

Tax and financial consultants are already hailing this method of requesting the Installation Agreement for its fresh start initiative at making the taxpayers more responsible.

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