The IRS designed installment payment plans as a choice available to taxpayers who need help to meet their responsibility to pay their taxes. With an installment payment, taxpayers can manage their debt and prevent further problems. But what happens if you can’t pay your installment payment? Can you skip an IRS installment payment? Let’s explore the answers by reading the article below.
What is an IRS Installment Agreement?
An Installment Agreement (IA) is a payment option for those who cannot pay their total debt at once. It allows taxpayers to settle their bills over time, as agreed upon by the IRS.
An installment agreement comes with many benefits. First, taxpayers can manage their debt effectively, easing financial pressure. Second, an installment payment prevents further complications, such as levies and legal troubles, when one fails to pay their debt. And third, it provides peace of mind, knowing that debts are being paid and problems are avoided.
How do IRS Installment Payments Work?
Generally, there are two main installment payment plans: short-term and long-term.
A short-term payment requires individual taxpayers to pay their debt in 180 days or less. On the other hand, with a long-term payment, taxpayers can pay the amount owed monthly for more than 180 days.
There are different ways you can apply for an IRS payment plan. The fastest way to apply is to apply online, using the IRS online payment agreement tool. However, you must be eligible to apply online. The requirements are:
For short-term plan:
- Owing less than $100,000 in taxes (including penalties and interest)
- Have filed all tax returns
- Able to pay off debts within 180 days.
For long-term plan:
- Owing $50,000 or less in taxes (including penalties and interest)
- Have filed all tax returns
- Requires more than 180 days to settle the debt.
It is important to note that interest and penalties on the unpaid balance will continue to accrue until the debt is fully paid. However, if you have an approved payment plan with the IRS, your failure-to-pay penalty will be reduced from 0.5% to 0.25% per month or partial month.
During the application, the IRS allows you to propose the monthly amount you want to pay. The IRS determines the amount based on your ability to pay. They will look into your financial standing to see whether the proposed amount is realistic.
Moreover, the IRS also allows changes in your existing installment agreement, such as changing the monthly amount, monthly due date, or method of payments, by using the payment agreement tool. However, modifying the conditions of your payment plan will still require IRS approval.
Can You Skip an IRS Installment Payment? The Consequences
Can you skip an IRS Installment payment? Yes, but there will be consequences. When you miss your installment payment, technically, the IRS can default on your agreement. When this happens, your payment plan is canceled, putting you back where you started—the obligation to pay the full amount in debt in one payment.
However, the IRS usually gives you an opportunity if you miss the first payment by sending you a notice informing you of your missed payment and what to do. Late-payment penalties and interest will continue to be added during this time.
Failing to act on IRS notices will lead to more severe actions, such as liens and levies, leaving you in a more complex position. Therefore, if you cannot pay the installment amount because situations have changed that affect your ability to pay, communicate it with the IRS. There are options, such as reducing the monthly payment.
Tips for Managing Your IRS Installment Agreement
1. Plan to Avoid Payment Issues
The key to avoiding payment issues is effective tax planning and financial management.
Budgeting your tax payments throughout the year will give you a clear idea of your finances. Monitor your expenses and plan by setting aside some funds to pay off the installments.
2. Communicate with the IRS
If you encounter any tax issues, such as the inability to pay your taxes, contact the IRS immediately. Don’t put off paying your taxes because time is of the essence. Inform the IRS of the situation so they can present you with choices to help prevent future tax concerns.
3. Seek Professional Assistance
Every step matters when dealing with tax issues and the IRS. Responding to IRS letters, understanding the issues at hand, organizing the required documents, negotiating with the IRS, and applying for an installment agreement requires a deep understanding of taxes and the ability to curate an effective strategy and navigate complex laws and regulations.
This is where professional assistance comes in handy. With a tax attorney by your side, you have the best representation that will help you every step of the way and give you valuable advice to deal with tax issues, prevent future problems, and get a favorable outcome.
End Note
An IRS installment payment is one of the best options if you have problems settling your debt in full. By paying what you owe periodically, you can manage your debt effectively and prevent further financial strains.
Can you skip an IRS installment payment? Yes, you can. However, you should not. Doing so will land you in more trouble, which is the last thing you want if you are already experiencing tax issues. The IRS can default on your existing installment agreement, impose penalties, and, worse, levy your assets.
To help you deal with tax issues effectively and get the right installment payment options, contact the experts at Greenberg Law Group P.A. With ample experience and knowledge in tax laws, our team is more than capable of handling different types of tax issues and can provide you with a personalized strategy tailored to your specific case, getting you closer to your desired results.
