Paying your taxes is never a fun thing. You’re left struggling to make ends meet and trying to piece together exactly how to deliver everything cohesively. But no matter what you end up with, you’ll still have to pay them. Fortunately, to make your life easier, the IRS offers payment plans to help you pay them effectively and efficiently. However, they’re rather complicated to ascertain for a lot of people. That’s why in this article, we’re going to be going over what IRS payment plans are and how they exactly work.
What’s Exactly an IRS Payment Plan?
In simple language, an IRS payment plan is where you agree with them to pay your taxes over a given period. For instance, say you owe $2,000 in taxes. Rather than spending it all upfront, you could work with the IRS to set up a payment plan so that you can pay it in increments over time. It could be, say, every month, you spend $200 until it’s paid off. Alternatively, it could be something like four direct payments of $500. It depends on how much you owe and how it works out with paying them.
One of the downsides to payment plans is that you can accrue penalties and interest. They keep going up until you hit a zero balance. However, continuing to make payments will keep the IRS from seizing your assets to pay back your taxes.
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How Do You Know if You’re Eligible?
IRS has pretty generous requirements regarding eligibility for their payment plans. You don’t even need to apply over the phone – you can do it online from the comfort of your home!
Eligibility is relatively simple and comes in two distinct forms – a long-term payment plan, defined as over 120 days, and a short-term payment plan, defined as within 120 days. The long-term payment plans allow anyone to be eligible as long as they’ve filed all of their tax returns and they owe $50,000 or less when combining taxes, penalties, and interest.
On the other hand, the short-term payment plan is extended to anyone who owes less than $100,000 total, accounting for taxes, penalties, and interest. Both are pretty simple as payment plan eligibility goes, and there isn’t that much to them beyond that.
What’s The Minimum Accepted Payment?
The IRS is pretty flexible with what it allows for minimum payments on your taxes. You get to choose what you pay every month when you set up a payment plan with the IRS, so long as you choose one that you can repay within 72 months. If it exceeds the 72-month mark, you can’t set up that payment plan.
What Are The Fees Associated With Setting Up a Payment Plan?
There are, of course, additional fees that come with setting up some payment plan. These fees depend on the type of payment plan you’re setting up – short-term or long-term – and vary substantially.
A short-term payment plan has zero fees associated with setting it up. So long as you pay your balance and work out what’s owed, you’ll be alright. You can pay your credit with a short-term payment plan in a few ways. Either withdraw from a checking or savings account, E-pay, pay over the phone, check money orders, or use a debit/credit card.
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Long-term payment plans, on the other hand, are a bit more complicated. Applying for one online can be associated with a $31 setup fee. There’s also a $107 setup fee when you use it by phone, mail, or person.
If you pay via a different method, such as direct payments or the Electronic Federal Tax Payment System, it can be a $130 fee to apply online, a $225 fee to apply by phone, mail, or in person, and a $43 fee for low-income people. Low-income people are defined as those who are at or below 250% of the federal poverty level. You can be reimbursed this amount when you pay off your total balance.
Other aspects to the fees are important to keep in mind, too. Namely, if you use a debit or credit card for your payments, there will be an additional charge. For debit cards, it’ll be $2 to $4, whereas credit cards can be up to 2% of the payment. Additionally, if you owe more than $25,000, you’ll have to make your payments by using automatic withdrawals from a bank account. If only these fees were tax credits instead!
What Information is Needed?
To apply for a payment plan, you’ll need a wide array of information to confirm your identity. This includes legal name, email address, address, date of birth, filing status, social security number, balance due amount, and a financial account or mobile phone number registered in your name.
Can I Make Changes To My Payment Plan?
You can make changes to your payment plan. The exact method for doing it is relatively simple as well, primarily an online process. By doing it online, you’ll be able to change the amount you pay, change your due date, sign up for automatic withdrawals, and reinstate a plan you’ve fallen behind on. However, this is only the case if you’re not making payments through direct debit.
Now that you understand what goes into IRS payment plans and how they work, you’ll be equipped to take on your IRS payments! All it takes is a bit of knowledge, and then you’re set to handle everything that needs to be addressed regarding your tax payments. It’s just a matter of understanding what goes into it and how they work, being a rather simple process.
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