A Complete Guide to IRS Installment Agreements: Understanding Your Options
If you’re unable to pay your taxes in full by the due date, the IRS offers several types of installment agreements to help you repay your tax debt over time. These agreements allow taxpayers to make manageable monthly payments, similar to paying off a mortgage or car loan. Below, we’ll explore the four main types of IRS installment agreements, their requirements, and when they might be right for you.
What Is an Installment Agreement?
An installment agreement is a payment plan between a taxpayer and the IRS that allows for gradual repayment of tax debt. While the general rule requires taxes to be paid in full by the due date, installment agreements provide relief for those unable to do so. Think of it as a structured plan for repaying your tax liability over time through fixed monthly payments, like a mortgage or car loan.
The Four Main Types of IRS Installment Agreements
1. Guaranteed Installment Agreement
- Eligibility: For individuals or businesses that owe $10,000 or less.
- Terms:
- Must fully pay the tax debt within 36 months (three years).
- No financial disclosures required.
- Key Advantage: Approval is almost automatic—hence the term “guaranteed.” Simply call the IRS or submit the appropriate form, and approval is granted.
If you owe $10,000 or less and can pay the balance within three years, this is the simplest and most accessible option.
2. Streamlined Installment Agreement
- Eligibility:
- Individuals: Balances up to $50,000.
- Businesses: Balances up to $25,000.
- Terms:
- Length of the installment agreement is the lesser of:
- 72 months (six years), or
- Time remaining on the IRS’ 10-year collection statute of limitations.
- No financial disclosures required.
- Length of the installment agreement is the lesser of:
- Key Advantage: Simple approval process without the need to share income or expense details with the IRS.
This agreement is ideal for taxpayers who owe more than $10,000 but less than $50,000 (or $25,000 for businesses) and need a longer timeframe to pay their tax debt.
3. Non-Streamlined Installment Agreement
- Eligibility:
- Individuals: Balances over $50,000.
- Businesses: Balances over $25,000.
- Terms:
- Generally, repayment is required within 72 months (six years).
- Financial disclosures required, including income, expenses, and assets.
- Key Details: The IRS uses your financial information to calculate a monthly payment amount that repays your tax debt within 72 months.
If your tax debt exceeds $50,000 (or $25,000 for businesses), you’ll usually (but not always) need to provide detailed financial documentation to secure this type of agreement.
4. Partial Pay Installment Agreement (PPIA)
- Eligibility: For taxpayers who cannot pay their full balance before the IRS collection statute of limitations expires.
- Terms:
- Monthly payments are based on what you can afford.
- Remaining tax debt is forgiven once the collection statute expires.
- Financial disclosures required.
- Key Advantage: Provides relief for taxpayers with significant tax debts who might not qualify (or don’t have the financial resources) for an Offer in Compromise.
A PPIA is a powerful tool for taxpayers facing overwhelming IRS debt. While the IRS will closely examine your finances, the remaining balance is forgiven once the collection period ends.
Need Help with IRS Installment Agreements?
Navigating and understanding IRS installment agreements can be overwhelming, especially if you owe significant back taxes. Whether you’re considering a Guaranteed, Streamlined, Non-Streamlined, or Partial Pay Installment Agreement, it’s essential to understand the requirements and choose the option that best fits your financial situation.
If you need guidance or representation, reach out to Boss Tax Law for expert assistance. With extensive experience helping taxpayers negotiate with the IRS, we’ll work to secure the most favorable agreement for you.