If you’re behind in your taxes, you may be considering signing up for an IRS payment plan but you might be wondering, what is the minimum payment the IRS will accept? The payment plan you set up with the IRS will depend on your individual situation, comes with a hefty fee, and may involve more than just a single lump sum payment.
To help you understand how the IRS payment plan works, and whether it’s a suitable solution for your finances, let’s go over what you need to know about the minimum payment the IRS will accept.
What Is The IRS Payment Plan?
The IRS payment plan is an arrangement between a taxpayer and the Internal Revenue Service that allows for the payment of back taxes in installments, rather than all at once. This type of plan can be beneficial to taxpayers who find themselves unable to pay their tax liability in full–it allows them to satisfy their debt obligation over time. Companies like Ideal Tax can represent taxpayers with the power of attorney for other alternatives in reducing the total amount owed.
The IRS will take into account a person’s income and asset information to determine how much might be owed, as well as the time frame for paying off the debt. As there may be penalties and interest added to any unpaid amount, it is important to stay on top of payments and not miss any due dates. Being on a plan with the IRS ultimately prevents taxpayers from getting further behind on their liability while allowing them to get out from under their tax burden.
Who is Qualified for an IRS Payment Plan?
The IRS offers different payment options to taxpayers based on their specific tax situation. You have three different payment options available: paying the entire amount in full, making a short-term agreement that allows for partial payments over time, or entering into a long-term installment plan.
1. Full Payment
If you are able to pay your entire tax debt in full, this is typically the best option as it will save you money on interest and penalties.
2. Short-term Payment Plan
If you are unable to pay your tax debt in full but can pay it off within 180 days, a short-term payment plan may be an option. Under this plan, you will not be charged a fee for setting up the plan, but you will be charged interest and penalties until the tax debt is paid off.
3. Long-term Payment Plan (Installment Agreement)
If you cannot pay your tax debt in full within 180 days, a long-term payment plan, also known as an installment agreement, may be an option. This plan allows you to make monthly payments over a period of time, typically up to 72 months. However, you will be charged interest and penalties until the tax debt is paid off.
The eligibility requirements for each payment plan option vary depending on your specific tax situation. If you’re an individual taxpayer, and the total of your taxes, penalties, and interest comes to $50,000 or less when all returns are filed on time – then you might be eligible for a long-term payment plan through our convenient online application process. To be eligible for a short-term payment plan, your total tax burden must not exceed $100,000 in the form of taxes, penalties, and interest.
If you are a business taxpayer and have filed all necessary returns, you could be eligible for an extended payment plan if your combined tax, penalties, and interest payments total $25,000 or below. Quickly apply online to get the financial assistance that your small business deserves!
As an independent worker, if you are searching for a payment plan it is suggested that you apply as an individual. The acceptance criteria will be the same to assess applicants who file separately from their partners.
It’s important to note that if you do not qualify for an online payment plan, you may still be eligible for a payment plan by applying via mail or by contacting the IRS directly. Additionally, it’s important to make sure that you make all payments on time and in full to avoid defaulting on your payment plan and facing additional penalties and interest.
Minimum Monthly Payments For IRS Payment Plans
When you set up a payment plan with the IRS, you will typically have the option to choose your monthly payment amount. This is referred to as the “minimum monthly payment” and the minimum amount the IRS acknowledges for your payment plan.
When settling on your monthly payment amount, the IRS will assess your financial situation and resources to decide what you can realistically afford. Your income, expenses, assets, and liabilities are all taken into account when deciding on a suitable minimum payment for you each month. You can request a specific monthly payment amount based on your financial situation, but the IRS may require you to provide proof of your income and expenses before approving your request.
If you choose a long-term payment plan, it is important to select an amount that will allow your debt to be fully paid off within 72 months. This includes the total cost of taxes owed plus interest and penalties. If paying off the full balance in this timeline proves impossible, there are other alternative plans available with the IRS; however, these may require submitting additional financial documents for consideration.
It’s important to note that the minimum monthly payment you choose will affect the total amount of interest and penalties you will pay over the life of the payment plan. The higher your monthly payment amount, the less interest and penalties you will pay in total.
Overall, the minimum monthly payment for an IRS payment plan will depend on your specific financial situation and the terms of your payment plan. If you are unsure about how much you can afford to pay each month, you may want to consult with a tax professional or contact the IRS directly for guidance.
What Happens If An Amount Owed Is Too Big?
Taxpayers who owe more than they can afford can consider a payment plan or an offer in compromise. A payment plan allows the taxpayer to make reduced payments over time until the balance is satisfied, while an offer in compromise allows taxpayers to pay less than the total amount owed to the IRS.
However, payment plans can accrue interest and may result in collection actions, while an offer in compromise requires strict adherence to its terms and additional paperwork. Choosing the right option depends on the taxpayer’s financial situation, and a qualified tax professional can provide guidance.
Final Thoughts On Tax Payments To The IRS
It’s important to understand the options available for taxpayers who owe money to the IRS, including payment plans with minimum monthly payments. Payment plans allow additional time to pay off tax debt, and a qualified tax professional or the IRS website can help determine eligibility. It may be better to set up a longer-term payment plan instead of making minimum payments, but consistency in payments is crucial to avoid penalties and fees.
Taxpayers should weigh the advantages and disadvantages before committing to a payment plan, and larger lump sum payments can simplify managing tax obligations and reduce interest charges. Ultimately, the best approach depends on the individual’s situation.