If you can’t pay the full amount you owe the IRS, and you don’t presently qualify for an Offer in Compromise, an Installment Agreement may be your next best option. In some cases, an Installment Agreement will allow you to pay the tax liability in smaller, more manageable amounts.
Installment Agreements generally require equal monthly payments. The amount of your monthly payment will be based more on your ability to pay than on the amount you owe. You should know, however, that an Installment Agreement can be more expensive than borrowing money from other sources to pay what you owe. This is because the IRS charges interest and penalties even during the period of the Installment Agreement. The interest rate on a bank loan, or even a cash advance on your credit card, may be less than the combination of penalties and interest charged by the IRS. If you can get a second mortgage or home equity line of credit the interest may be deductible, whereas interest and penalties that you pay to the IRS are not deductible. The IRS charges a $43 “user fee” for implementing an Installment Agreement.
Even though you enter into an Installment Agreement and you make the required payments, the IRS may still file a Notice of Federal Tax Lien against you. However, the IRS cannot levy (seize) your property or your wages:
- while a request for an Installment Agreement is pending;
- while an Installment Agreement is in effect;
- for 30 days after an Installment Agreement request has been rejected; or
- while an appeal of the rejection of the Installment Agreement request is being appealed.
There are currently three types of Installment Agreements. Balances below $10,000 qualify for a Guaranteed Installment Agreement. Balances above $10,000 but below $25,000 qualify for a Streamlined Installment Agreement. Balances above $25,000 only qualify for Non-streamlined Installment Agreements.