As a United States taxpayer, you may sometimes find yourself lagging behind on your tax payments, which can result in significant penalties and interest charges.
Fortunately, the IRS offers several tax installment agreements to help you pay your tax debt over time. These are outlined below.
1. Streamlined agreement
If you owe $50,000 and below in combined tax, penalties and interest, you can qualify for a streamlined installment agreement. This type of agreement allows you to pay off your tax debt within 72 months (6 years). The approval process is generally quicker and requires less documentation compared to other types of installment agreements.
2. Guaranteed installment agreement
This agreement is available if you owe $10,000 or less in taxes (excluding penalties and interest) and meet certain other conditions. The IRS guarantees approval of this type of installment agreement if you:
- Have filed all required tax returns.
- Have paid any taxes due for the past five years on time.
- Agree to pay the full amount owed within three years.
- Have not entered into an installment agreement in the previous five years.
If you tick all the boxes, you can consider applying for a guaranteed installment agreement to manage and pay off your tax debt in a structured and predictable manner.
3. Partial payment installment agreement (PPIA)
For taxpayers who cannot pay their tax debt in full, even within an extended period, the IRS offers the PPIA. This agreement allows you to make monthly installments based on what you can afford, which may be less than the full amount of your tax debt. To qualify, you will provide detailed financial information to the IRS, including income, expenses, assets and liabilities.
4. Non-streamlined installment agreement
If you owe more than $50,000 or need more than 72 months to pay off your tax debt, you may need to apply for a non-streamlined installment agreement. This type of agreement requires a more detailed review of your financial situation and may involve negotiations with the IRS.
By understanding these installment agreements, you can choose the one that best fits your financial situation and work towards clearing your tax debt in a manageable way.