Mar 01, 2017
By Paula Rogers, CPA Partner and President at Terry Lockridge & Dunn
Your income taxes are calculated and SURPRISE! – taxes are due that you cannot pay by the filing deadline, whether it is from stock sales, a good investment year, more self-employment income, or some other reason. How do you work with the IRS to pay this amount due?
Installment agreements are the most common payment arrangements. Taxpayers make monthly payments, usually by direct debit or payroll deduction. The IRS charges a set-up fee that ranges from $31 - $225 depending on how you set up the payment plan. Keep in mind that interest and late-payment penalties continue to accrue during the installment period, but the late-payment penalty is cut in half for any month that an installment agreement is in effect. Taxpayers can set up an installment agreement by either calling the IRS (1-800-829-1040), using the IRS’s Online Payment Agreement (OPA) tool at irs.gov or filing Form 9465, Installment Agreement Request.
The OPA tool allows a qualified taxpayer to avoid long telephone wait times to apply online for an installment agreement. Taxpayers receive immediate notification if the agreement is accepted and the process takes about 30 minutes. To qualify to use the OPA tool, an individual taxpayer must owe $50,000 or less in combined tax, penalties and interest and all required forms must be filed. A business taxpayer can use the OPA tool if they owe $25,000 or less in combined tax, penalties and interest and all required forms are filed.
Form 9465, Installment Agreement Request, can be filed at any time by an individual taxpayer to request an installment agreement, but it is best to file it at the same time with a balance-due return. Most installment agreements are straightforward and usually automatically approved with little other information needed if the amount owed is less than $50,000, able to be repaid in 72 months, paid through direct debit or payroll deduction and all tax returns have been filed. The IRS usually lets you know within 30 days (possibly longer if filed with a return after March 31st) of receiving Form 9465 if the installment agreement is approved or denied. The IRS will send a notice detailing the terms of your agreement and amount of the fee due for the installment. Do not use Form 9465 if you can pay the full amount within 120 days as the IRS will grant a short-term extension to pay the liability in full without any set-up fees. You would need to call the IRS for this short-term extension.
For amounts due that are over $50,000, cannot be repaid in 72 months or taxpayer does not agree to make payments by direct debit or payroll deduction, the IRS will require additional information before granting an installment agreement. Form 433-F, Collection Information Statement, must be completed along with Form 9465 in these circumstances. Form 433-F asks very detailed questions about the taxpayer’s financial situation and will take substantial time to complete.
If you find yourself in this situation of owing back taxes, or need additional time to pay the taxes due, feel free to contact Paula Rogers, at firstname.lastname@example.org, or one of our other qualified tax professionals, to assist you with an installment agreement. They can be reached at 319-364-2945 in Cedar Rapids, or 319-339-4884 in Iowa City.