Installment Agreements for tax debts

Many taxpayers, including businesses that owe payroll tax, can be set up with a monthly payment plan with the IRS. Making sure the monthly payment amount is manageable is crucial.

What is an Installment Agreement?

An Installment Agreement (IA) is a monthly payment plan with the IRS to pay off a tax debt. There are two major types of Installment Agreements. The first type is one that will pay back the IRS the entirety of the back taxes. The other type, known as a Partial Payment Installment Agreement (PPIA), will pay the IRS some fraction of the entire debt back.

How do I get into an Installment Agreement?

Am you current? For the average taxpayer, being current means that your current tax withholdings are correct. If you’re self-employed, it means that your estimated payments are being made quarterly. If you’re a business trying to settle payroll taxes, your deposits must be current for at least two quarters in a row. How you apply depends on what type of agreement you want to get into. Some can be submitted online. Some have to be done with full financial disclosures. If a Revenue Officer is assigned, the Installment Agreement must be submitted through that Revenue Officer. 

What if my Installment Agreement gets rejected or turned down?

If your installment agreement is turned down or rejected, the IRS thinks you can pay more than you claim. The danger is, maybe you truly can't afford the monthly payment amount they want from you. A common occurrence we see every day is people and business struggling to make their installment agreements with the IRS. They incur new tax liabilities because they can't afford to pay their current ongoing tax bill. So the problem keeps on going and going and never gets better — even though these people wind up paying a tremendous amount of money to the IRS.

If your Installment Agreement is rejected, you can (and should) appeal the decision. You'll want to take another look at how you are painting your financial picture and see what changes can be made. 

What if I default on my Installment Agreement?

If you run up a new liability,  the IRS will default you in your current Installment Agreement (even though you are paying)! And as a rule, you lose appeal rights, although there are sometimes other ways to get appeal rights back.