No one wants to pay more taxes than necessary when filing their income tax return. However, things don’t always work out as planned and you may find yourself not having enough money to pay your tax bill. Fortunately, in recent years, the IRS has made it easier to pay delinquent taxes in monthly installments. MEDOWS CPA, PLLC can help you in arranging payment plans with the IRS.

The first step is to complete IRS Form 9465, Installment Agreement Request, and attach it to your return. You may file electronically. However, you will have to supply information such as the name of your bank and the amount and date of the proposed monthly payment. You will not need a financial statement for amounts under $25,000. If the IRS approves your request, there will be a $120 fee, reduced to $52 for taxpayers directly debiting payments from their bank accounts and $43 for low income taxpayers. The decision usually comes within 30 days.

The IRS is required to enter into an installment payment agreement if the tax liability is no greater than $10,000. The only requirements to take advantage of this “automatic” right to an installment agreement are: (1) over the previous five tax years you must not have failed to file a tax return or pay income tax; you cannot have already entered into another installment agreement, (2) you agree to pay the full amount you owe within three years and to comply with the tax laws while the agreement is in effect; and, (3) the IRS determines that you are unable to pay the liability in full when due.

Under a streamlined approval process, the IRS will grant installments to taxpayers who agree to pay a balance due of $25,000 or less within a five-year period. Under the streamlined process, no financial analysis by the IRS is required. The agreements do not require the collection manager’s approval or the filing of liens. Taxpayers may be granted a streamlined agreement even if they are able to fully pay their accounts.

The IRS is authorized, in most situations, to enter into a partial payment agreement with a delinquent taxpayer. Under this rule, the IRS is no longer restricted to seeking a payment agreement that will “satisfy the liability.” Instead, the goal of the agreement is to have the taxpayer “make payments” in “full or partial ” satisfaction of the liability.

When you enter into an installment agreement you must agree to make the monthly payments on time. You also must agree to meet all future tax liabilities. As a result you should arrange for your withholding from salary or wages and payments of estimated tax to be sufficient to ensure that taxes will be paid in full when a future year return is timely filed.

The IRS can terminate an agreement if you don’t timely pay an installment (and for other reasons). But it will give you thirty days to respond to its intention to terminate and an agreement that is terminated can be reinstated. There is a $45 fee for restructuring or reinstating an installment agreement.

It’s important to be aware that even if an installment payment request is granted by the IRS, interest and a reduced late payment penalty of .25% per month applies to any balance due. Therefore, to minimize interest and penalty charges, you should timely file the return and pay as much tax as possible with the return before making an installment payment request.

Once you take into account these interest and penalty charges, it may be less costly to borrow funds from an alternative source and use them to pay your tax rather than asking the IRS to allow installment payments.

State and local tax authorities have similar plans.

Please contact our CPAs in the Lower East Side if you would like more information on delinquent taxes in New York or if we can help you figure out an installment payment arrangement that is best for you.