If you owe a significant amount of money to the Internal Revenue Service, you may be worried that you can’t afford to pay off this debt – at least not all at once. Thankfully, the IRS does offer numerous avenues for paying off tax debt. Before you agree to anything or give the IRS all of your financial information, however, you should understand what options may be available to you.
One of the options for paying off tax debt is an installment agreement. This is simply a plan to make regular payments over a period of time in order to settle the debt. There are four different types of installment agreements, and we’ll briefly discuss all four in the next two posts.
The four types include:
- Guaranteed installment agreement
- Streamlined installment agreement
- Partial payment installment agreement
- Non-streamlined installment agreement
The advantage of the first two agreements on the list is that the IRS will not file a federal tax lien against you if all conditions are met. A guaranteed installment agreement usually requires that the full debt be paid off in less than three years. The monthly payment amounts will be based on the sum total of your tax debt, interest and penalties divided by the number of monthly payments (around 30). Because of the short payback period and other requirements, you might not qualify for a guaranteed installment agreement if your tax debt (before interest and penalties) exceeds $10,000.
The IRS also offers streamlined installment agreements, including its Fresh Start Program. If you tax debt is less than $50,000, you already meet one of the requirements for the Fresh Start Program. Streamlined installment agreements have at least one advantage over guaranteed installment agreements: More time. Generally, a streamlined agreement will be paid off in 5 years (60 months).
