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Applying for a tax payment plan

Squeezed-by-tax-debt

Are you one of those folks who's worrying about how you'll pay your tax bill on July 15? If it's an amount that you just can't come up with or cover with a credit card, look into paying off Uncle Sam over time.

The Internal Revenue Service offers a couple of ways to spread out your tax bill over several months.

As with most tax transactions nowadays, you can apply for a payment plan online.

But depending on the way you decide (and qualify) to pay your tax bill also involves some forms. Those documents, Form 9465 and possibly one of the three versions of Form 433, are featured in this week's Tax Form Tuesday.

Two extended payment options: The IRS offers two primary ways to stretch out tax payments you can't make all at once. The one you choose depends on your specific tax situation.

A short-term payment plan means you can pay your tax bill in 120 days or less. If you qualify for this type of payment plan, it usually can be set up quickly online.

The long-term payment version, also called an installment agreement, gives you up to six years to pay. Installment agreements are paid by direct deposit from a bank account or a payroll deduction to help ensure taxpayers don't default on their agreements.

You also could be asked to fill out Form 9465 (excerpt shown below).

Form 9465 IRS tax payment installment agreement application

The amount you owe will determine whether you must actually complete Form 9465 or can use the IRS' online installment plan tool. It your tax debt is $50,000 or less, you can go the online route. Just go to IRS.gov/OPA to apply for an Online Payment Agreement.

Tax debt size matters: Even if you can use the online option, how much you owe still plays a major factor in the type of payment plan you can or must choose and how long you need or get to pay it off.

If you owe the U.S. Treasury less than $10,000 then the IRS usually automatically approves your payment plan as a guaranteed installment agreement. This means that as long as you promise to pay off your balance within three years, there is no specific minimum payment required.

When you owe tax of more than $10,000 but less than $25,000 your qualifying isn't guaranteed, but the IRS says that most taxpayers who apply still usually are eligible for what it calls a streamlined installment plan. Here you don't have to provide the IRS with any additional info and you get up to 72 months — that's six years if you prefer that counting method— to pay your tax bill. but there is a minimum payment amount. It's your balance due divided by the 72-month maximum period.

Once your tax bill gets bigger, like between $25,000 and $50,000, then things get a bit more complicated. In these cases, you'll have to answer some additional questions about your assets on page 2 of Form 9465, an excerpt of which is shown below.

Form 9465 IRS tax payment installment agreement page 2 asset info

This includes your marital status, age, income earned by both you and, if married, your spouse and some other financial obligations.

And if you're really, really in deep tax debt, the IRS will ask you to fill out another form.

When your tax due balance is more than $50,000, you're instructed on Form 9465 to fill out 433-F. This more thorough review of your assets by the IRS could determine the fate of some of those assets. For example, Uncle Sam might tell you to sell some to pay down your outstanding tax balance.

Forms 433-A, B & F Asset Information


   You might have heard about other versions of Form 433. The IRS is a master of redundancy, but all the 433s basically serve the same purpose. They let the IRS know about your financial assets so it can figure out how much you can reasonably pay in installments toward your owed federal income tax.

   Based on the information and amount you owe, you could be instructed during your application for a tax payment plan to complete one of them. The most common in this process are:

  • Form 433-A, which is used for by both wage earners and those who are self-employed.
  • Form 433-B, which is used when you're looking for more time to pay off your business' tax bill.
  • Form 433-F, which is a simplified, two-page version of Form 433-A. It is the asset information collection that the IRS uses most often in determining a taxpayer's eligibility for a payment plan.

The information asked for on Form 433-F includes your bank accounts, lines of credit, and mutual funds; real estate and other assets, such as vehicles; credit cards and amount owed; employment or business details if you own your own firm; non-wage income; and monthly living expenses.


Faster payment means less due: While to a degree you can choose how much you can (or want to) pay each month, it's in your best tax interest to pay as much as possible. That's because the IRS, just like your credit card or other revolving credit accounts, adds interest to what you owe.

Plus, Uncle Sam tacks on penalty charges, too.

So the quicker you can pay off your tax debt, the less you'll owe in those added amounts.

The IRS also has to option to change the amount you want to pay if it determines it's too low. That minimum monthly, as noted earlier, generally is your total tax bill divided by 72.

Don't forget the fees: There's also the fees factor. Yes, just applying for a payment plan in most cases will cost you extra.

The only way you can avoid an application fee is by paying off your tax debt within 120 days.

If, however, it takes you longer, the IRS charges a variety of fees, which also take into account how you plan to pay each month.

An installment plan where you agree to direct debit payments will cost you $31 if you request it online. If, however, you choose to establish the plan by phone, phone, mail or visiting an IRS office in person (which isn't an option right now in most areas due to COVID-19 precautions), the application fee is $107.

If you'd rather write a check or money order or use your own online bill payment system to pay down your tax bill, that will cost you, too. When apply online but don't use direct debit to pay, the charge is $149. It goes to $225 for applying without direct debit via a telephone, mail or in-person application.

The IRS does offer a fees reduction if you're a lower-income taxpayer. You meet this standard if your adjusted gross income (AGI) for the most recent tax year available is at or below 250 percent of the federal poverty guidelines. How to determine whether your AGI is at this fee-reduction level can be found in the instructions for Form 13844, Application For Reduced User Fee For Installment Agreements. Bonus form!

Default's higher costs: Like all extenders of credit, Uncle Sam is serious about his terms. If you don’t make your payments on time or don't pay tax you owe on a future return, you will be in default of your agreement.

In these cases, the IRS warns that it may — and by may, it really means it will — take enforcement actions. These include filing a Notice of Federal Tax Lien (NFTL) or an IRS levy action to collect the entire amount you owe.

The IRS really doesn't like the hassle of having to go through this added collection process. It's messy and it takes time. That's why the agency encourages you when getting an installment agreement to seriously consider the direct debit payment option.

Then all you have to do is make sure that paying account has enough money in it each month when your tax installment amount is due.

Professional help tends to pay: Finally, if you think a tax payment plan is the way to go, take that route. But, as I've said many times, you should talk with a tax professional beforehand. Yes, if you don’t owe much the IRS has made it very easy to go online get a plan.

A tax pro, however, could take a look at not only your past tax situation that got you into this owing dilemma, but also what future taxes might look like. That overall examination of your tax life and how to better handle it, regardless of whether you do end up with a payment plan, is always worthwhile and could ultimately save you money.

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