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What is the IRS installment plan for paying tax debt?

On Behalf of | Jun 23, 2022 | Tax |

Many people in the Fort Worth, Texas area are behind on their income taxes. The Internal Revenue Service has created an income tax installment plan to help.

What are installment payment plans?

If you owe toward a prior year’s income taxes, you can satisfy that debt by using the monthly installment agreement. The Internal Revenue Service modified the rules for paying back tax debt that makes it easier for many people to make payments in installments. Previously, it was only available if you owed up to $25,000 in tax debt, but the amount was increased to $50,000. You also now have up to 72 months to pay whereas the previous time limit was 60 months.

What are the criteria for qualifying for an installment plan?

Although you can pay back tax debt owed from previous years, one of the requirements of eligibility for an installment plan is that don’t owe toward the current year’s taxes. If you have missed filing multiple tax returns, you won’t be eligible. If you’re self-employed, you must have paid your quarterly estimated taxes for the current year up to this point.

If you qualify for a payment plan, you will also have to pay any interest and penalties owed to the IRS. Interest can add up quickly and might be as high as 8 to 10%.

How can you make monthly payments toward the plan?

You can make payments through direct payroll deduction by requesting Form 2159. This method allows your employer to send the money to the IRS monthly by deducting it from your pay.

The other option is direct debit, which means that the funds are automatically deducted from your checking account and go to the IRS each month. This is often the most preferred method of paying back tax debt.

An installment plan can help you pay back taxes faster. It’s convenient and can bring you relief.