If you have trouble paying taxes, you may experience bouts of anxiety at the thought of the IRS sending demanding letters and charging you penalties. You want to meet your obligations, but you do not have the financial resources to pay your taxes in full.
The IRS explains how installment agreements work. Determine if this alternative could help get you out of a tight financial spot and breathe easier.
Breaking down installment agreements
With an installment agreement, you pay your taxes within a lengthened period. These agreements work most favorably if you know you have the financial means to catch up on payments within that timeframe. If you feel uncertain about your ability to meet the deadline, voice this concern with the IRS. That way, you may make alternate arrangements that meet your means.
Understanding installment agreement fees and costs
Before agreeing to an installment agreement, it helps to get clear on the associated costs and fees. If you make automatic payments from your checking account, the Direct Debit option, you pay a $31 online setup fee. If you apply by mail, phone or in-person, you pay a $107 setup fee. The IRS waives the setup fee for low-income taxpayers. While making installment payments, you accrue interest and penalties until you clear your balance.
The second installment agreement payment option is making monthly payments from a savings or checking account, making payments over the phone or online, and paying by check. Applying online comes with a $149 setup fee. Those who apply by phone, mail or in-person pay a $225 setup fee.
You deserve to explore all your options for paying your taxes. An installment agreement could keep you on the IRS’s good side.