Installment Payment Rules Expanded to Aid More Taxpayers

By Marcia Richards Suelzer, Toolkit Staff Writer

The IRS has a variety of programs designed to help taxpayers who can not pay their tax bills in full by the due date, The easiest of these is the streamlined installment agreement. To enable more taxpayers to take advantage of this program, the IRS has raised the streamlined installment agreement threshold from $25,000 to $50,000.

An installment agreement is an option for those who cannot pay their entire tax bills by the due date. If a taxpayer is making payments under an installment agreement, the failure-to-file penalty is reduced to one-quarter of 1 percent, although interest continues to accrue on the outstanding balance.

Think Ahead. Before filing for an installment agreement, it is good idea to consider other sources (such as a loan) because interest and penalties will continue to accrue on the unpaid balance over the term of the agreement. In order to reduce these amounts, it's best to make the largest possible payment. (The minimum payment you can make is $25 per month.)

If possible, attempt to pay your liability in full within 120 days. If you do so, you will spare yourself the user fee that is assessed on an installment agreement. (The user fees are $52 for Direct Debt Installment Agreements and $105 for Payroll Deduction Installment Agreements or other types of payments.) Also, bear in mind that the IRS will apply any future tax refunds directly to your liability on the installment agreement--which is another motivation to pay the largest amount in the fewest possible months.

Installment agreements come in two flavors: the streamlined installment agreement and the regular installment agreement. The streamlined installment agreement features an easy application process and does not require the extensive financial disclosures required for either a regular installment agreement or an offer in compromise.

Under the expanded Fresh Start provisions, taxpayers who owe up to $50,000 in back taxes will now be able to enter into a streamlined agreement. In addition, the maximum term for streamlined installment agreements has also been raised to 72 months from the current 60-month maximum. In order to qualify for the new expanded streamlined installment agreement, a taxpayer must agree to monthly direct debit payments.

Using the Online Payment Agreement

Taxpayers can set up a streamlined installment agreement with the IRS by going to the On-line Payment Agreement (OPA) page on IRS.gov and following the instructions. Before starting the process, you should have the following information available:

• Social Security number or Individual Tax ID number
• Date of birth
• Caller ID number, shown at the top of your recent notice
• PIN, if you have one. If not, you need your AGI
• Bank address, because you are required to have direct debit for the installment payments
• Employer address, and
• Highest amount you can pay, and when you can pay it

You should also have your tax return handy to verify information. You may also need information about your income and expenses (such as rent, mortgage payments or utilities) to determine the amount of your monthly installment payment. With this information, you can calculate a monthly payment that will fit into your budget. In some cases, OPA will provide a payment calculator to assist you in determining an appropriate payment amount. You should also consider when you want to make the payments, as you will be asked to select the day of the month you want your monthly payment to be due.

If you owe $50,000 or less and can pay in full within 72 months, you will receive approval online after you provide the necessary information.

What If You Don't Qualify for a Streamlined Agreement?

If you owe more than $50,000 or need more than 72 months to pay, you can not use the streamlined method. If you don't meet the requirements, your request--and your financial condition--will be reviewed by the IRS before your installment agreement is approved. You will need to prepare a Collection Information Statement (Form 433-A or Form 433-F) and submit it to the IRS. Your monthly expenses will be compared to Allowable Expense Standards and a decision on your request will be based upon this review. National Standards are available for transportation expenses, housing and utility expenses, food, household, and other miscellaneous expenses. Housing and utility expenses are available down to the county level.

Tip. If possible, you will want to pay down your balance to $50,000 or less to take advantage of streamlined installment agreement option.