Which IRS Installment agreement is the best for you?

IRS tax debt can pile up like snow outside your house after a big winter storm. The morning after a snow storm, we look outside our windows, and are unsure where to even start: we can barely open our front door without snow falling inside, how do we make a dent in shoveling the driveway? 

Similarly, owing taxes lead us to feel helpless, overwhelmed – all the money owed to the IRS has piled up, now what?

You don’t have to feel lost. The IRS offers a way to make a dent in what you owe through entering into an installment agreement, a simple and manageable option to repay each month. 

The IRS offers us three different types of installment agreements:

  • Streamlined installment agreement, if you owe under $50,000.
  • Nonstreamlined installment agreement, if you owe under $250,000.
  • A regular installment agreement, regardless of the amount you owe.

Our installment agreement options are based on how much you owe and each come with fine print to consider. Let’s dig into them. 

I’m ready to start paying back my taxes. How can a streamlined installment agreement help?

If we owe the IRS $50,000 or less in taxes, a streamlined installment plan could be the right choice for you. In this plan, the IRS has us pay our taxes over 72 months or less, similar to a car loan. With streamlined installments, the IRS requires us to repay what is owed in full. It’s important to note that if the IRS time to collect is less than those 72 months, then our repayment term will be within that shorter time frame.

For example, if you owe $45,000 and the IRS has 72 months to collect, our payment would be approximately $625 each month. However, if you owe $45,000 and your collection statute expires in 60 months, our payment would abide by that 60 month timeline, coming to $750 each month. 

One of the most enticing aspects of the streamlined installment agreement is that we are not required to disclose any of your financial records – in other words, the IRS does not get into any of your business (your properties, earnings, assets). You can avoid handing over all those private, extensive documents to the IRS.

What about nonstreamlined installment agreements? How are those different from streamlined installment plans?

Unlike streamlined installment agreements, which are for $50,000 and under and span over 72 months, nonstreamlined installment agreements are for larger amounts owed and may have longer repayment periods. 

Nonstreamlined installment agreements offer more flexibility, as the balances can stretch up to $250,000; even more, your payment plan can be longer, up to the 120 months (10 years) of your collection statute period. So, if you have nine years left before your collection statute expires, your monthly payments will be set up to pay off your full tax bill over those nine years. 

Similar to streamlined installment agreements, nonstreamlined installment agreements do not require us to disclose your financials to the IRS. Again, this means the IRS will not be sticking their nose into your accounts and personal information. These agreements are simple, with no-strings-attached, as long as you can meet your monthly payments.  

However, there is one downside to the nonstreamlined installment plan: the IRS will file a tax lien with this agreement, which is a security on your debt. This could pose challenges if you are purchasing or selling property, in which the lien would need to be addressed. But as long as you’re following the agreement, the lien will be sitting quietly as security. 

Under nonstreamlined installment agreements, you can enter into a longer payment period and do not need to disclose your financials, but encounter that tax lien.

What about an agreement with financial disclosures?

If you find yourself outside of the criteria for streamlined or nonstreamlined installment plans, (maybe you owe more than $250,000, or you are unable to financially meet installment agreement payment amounts), you will need to disclose your finances to the IRS. 

The IRS will have you complete their Form 433A, Collection Information Statement, in which we will disclose your banking information, wages, living costs, assets, to negotiate a payment plan. If you owe $500,000, the IRS might calculate that you pay $100 a month; thus, you can end up paying a much lower amount in these plans if the IRS sees this is all you can pay monthly. 

However, the IRS will refer to their Collection Financial Standards to determine how much we are financially able to pay – this can sometimes be very different from what we believe our finances allow. Collection Financial Standards places caps on your spending based on your financial information; while you believe you can pay $150 a month, the IRS may determine you can pay $300 a month. For example, the IRS may view that your expenses can be lessened for food, or that your mortgage is too pricey, and redirect these funds towards repayment. 

As a result, we can encounter two differing realities: yours and the IRS’. 

To avoid disclosing your financials and completing Form 433A, we can pay your amount down by contacting and working with the IRS, and manage to fit the criteria for a streamlined or nonstreamlined installment plan. For example, if you owe $60,000, we could work towards paying that amount down to the necessary $50,000 and entering into a streamlined installment plan. 

When our tax debt seems unmanageable, the IRS offers a simple solution: installment agreements. When owing less than $50,000, a streamlined installment agreement is a great option to avoid disclosing your financials to the IRS and having a dependable payment timeline. Similarly, we avoid the IRS sticking their nose in your business with nonstreamlined installment plans, for amounts of $250,000 or less. If we owe more than these amounts or are unable to meet these monthly payments, we complete IRS Form 433A and work with the IRS for a payment based on your financial condition. It’s important to understand the different installment options before calling the IRS to ensure your finances are protected and that our repayment plan best suits your needs. 

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