Entering an installment agreement with the IRS allows you to settle an existing tax liability while paying your taxes for the current tax year. You’ll generate an additional debt if you fall behind on taxes due while you’re paying off back taxes.
Can you have two installment agreements with the IRS in this situation? Negotiating another installment agreement is unnecessary because you can consolidate the debt and continue paying it off under the original payment plan.
The IRS doesn’t usually allow taxpayers to have multiple installment agreements simultaneously, but it may sometimes approve successive payment plans.
Let’s explore some of the best ways to settle multiple due balances without negotiating two installment agreements with the IRS.
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Entering an Installment Agreement With The IRS
Failing to file taxes, skipping monthly or quarterly tax payments, or miscalculating your taxes creates tax liabilities. The statute of limitations on debt collection is ten years, while there’s no time limit on collecting back taxes if you don’t file a return.
Evading these debts isn’t an option because you’ll have to pay them sooner or later. Paying the total amount you owe to the IRS is the fastest way to settle tax liabilities and avoid accruing interest and penalties.
The IRS offers a range of installment agreements to taxpayers who can’t afford to pay the entire amount they owe in a single payment.
You must file all unfiled tax returns before applying for an installment agreement, even if you cannot afford to pay the debt, because the IRS won’t consider your application if you have unfiled taxes.
The agency usually checks your tax records for the last three to six years, so filing all missing tax returns is paramount.
Qualifying For an Installment Agreement
You’ll need to provide a copy of the latest return, bank account and routing numbers, contact details, SSN, proof of identity, and the taxes you owe.
You can apply for an installment agreement online or by filling out Form 9465 Installment Agreement Request and mailing it to the local IRS office with all other necessary documents.
Filing this form is optional if you can pay off the debt within 120 days. Moreover, you can only apply for an installment agreement online if you owe less than $50,000 with penalties and interest.
You may qualify for a full, short-term, or long-term payment plan depending on your debt and current financial situation.
Can You Have Two Installment Agreements With The IRS?
Besides filing taxes on time, installment agreements come with a few other conditions taxpayers must meet.
Setting up the installment agreement means you acknowledge the debt with penalties and interests, agree that all refunds will go towards paying off the debt, and intend to pay your tax liability in full within a set timeframe.
The IRS will continue charging interest until the debt is paid off. The amount you’ll pay each month will depend on how much you owe, your income, the duration of the agreement, and other factors.
However, the IRS will consider that you’ve defaulted on the installment agreement if you stop making monthly payments or don’t pay your ongoing tax obligations.
This can prompt the IRS to take a collection action, such as garnishing your social security or placing a tax lien on your property.
Notifying the IRS that you cannot pay taxes for the current tax year before filing a return is paramount. Otherwise, you’ll default on an installment agreement and trigger a collection action.
The IRS will allow you to consolidate debt and amend your current installment agreement, so there’s no need to set up another one. You can negotiate successive installment agreements if you cannot pay the monthly installments after debt consolidation.
You must prove that you can’t clear your debt in a given timeframe and show determination to do so by continuing to make payments regularly to secure successive agreements.
The Basics of Debt Consolidation
A timely reaction is essential when you realize that you cannot meet your tax obligations for a certain tax year and that your overall debt towards the IRS will increase.
You must consolidate the debt and amend your ongoing installment agreement before the filing deadline. After processing your new account balance, the IRS will place you in default if its agents determine you owe additional taxes.
Here’s how to consolidate debt and revise your installment agreement:
- Go to a local IRS office and renegotiate the installment agreement’s terms.
- Call 1-800-829-7650 and speak with an IRS agent.
- File Form 9465, along with the existing and expected account balance.
The Online Payment Agreement tool on the IRS website lets you amend your installment agreement. The tool allows you to change the payment method and details, monthly payment amount, or select a new plan.
You’ll have to pay a $10 fee to revise the agreement online, while switching to a different payment plan will cost you $89. Depending on the payment method, additional fees may apply.
Exploring Different Types of Installment Agreements
Your current financial situation and the amount you owe are among the key factors you’ll use when selecting the installment agreement that best matches your needs.
The IRS offers four installment agreements tailored for taxpayers who owe more than a specified threshold amount, and each plan has different repayment terms.
Guaranteed Installment Agreement
Taxpayers who owe under $10,000, excluding interest and penalties, can apply for the Guaranteed Installment Agreement. The short-term payment plan enables you to pay back taxes in four months (120) days, but you must meet the following criteria to qualify:
- Do not have an ongoing installment agreement with the IRS.
- File and pay federal taxes for the last five years.
- Pay upfront the total amount of your debt divided by thirty.
Consequently, you cannot use this installment agreement type to consolidate new and existing tax liabilities.
Streamlined Installment Agreement
The Fresh Start Program increased the streamlined installment agreement’s threshold from $25,000 to $50,000 with interest and penalties.
You can apply for this installment agreement without submitting financial documentation if you owe less than the threshold amount and can repay the debt in 72 months.
The payment plan’s fees depend on the payment method, and you’ll have to pay an additional $10 fee if you want to revise or reinstate the plan. Low-income taxpayers can have these fees reduced or waived.
Non-Streamlined Instalment Agreement
A non-streamlined payment plan is aimed at taxpayers who owe over $50,000 in back taxes. Your application must include Form 433-F, specify the monthly payment amount, tax liability, and living expenses, and list all your assets.
The IRS usually needs several months to approve an application. The plan’s threshold amount is $250,000, and its maximum duration is 120 months.
You can amend a non-streamlined installment agreement if you generate additional debt before the plan’s repayment term expires.
Partial Installment Agreement
Taxpayers who cannot pay a tax debt in 72 months qualify for the partial installment agreement. However, the IRS will reject your application for this payment plan if you cannot provide detailed information that supports your claim.
Applying for this payment plan online isn’t possible, and you’ll have to contact the IRS if you want to set it up or amend it.
Reasons to Consider Applying For an Offer in Compromise
The IRS doesn’t forgive debts often. That said, consider applying for an offer in compromise if you can’t afford to consolidate debt or qualify for any of the available installment agreements.
An offer in compromise is similar to a partial installment agreement because it will reduce your debt. However, if approved, the OIC prevents you from repaying the proposed amounts in more than six payments over 24 months.
Unlike partial payment agreements that allow you to pay off the debt in monthly payments you can afford, some offers in compromise involve a single lump payment.
Consequently, an OIC is far from the easiest way to handle tax debt created after setting up an installment agreement.
Frequently Asked Questions
The IRS allows you to amend an installment agreement online if the payment plan involves repaying the debt in full.
The IRS approves most applications for streamlined and guaranteed installment agreements. You’ll have to pay the entire debt amount if your application is rejected.
You don’t have to apply for another installment agreement if you already set up a payment plan. Instead, you can consolidate debt and change the amount you pay to the IRS monthly.
All your refunds will be directed towards repaying the debt once you enter an installment agreement, so you can only get a tax refund after you clear the debt.
Consolidating Debts and Negotiating The Best Installment Agreement Terms With The IRS
Despite the IRS’ efforts to simplify the process of setting up installment agreements and amending them to reflect new due balances, navigating these payment plans is challenging for most people.
The most important thing to understand is that you don’t need a second payment plan if you generate more debt after entering an installment agreement. Instead, you should consolidate the debt and continue paying it off within your current agreement.
Please call 866-8000-TAX or visit choicerelief.com to find the best way to incorporate new tax debt into your existing payment plan.
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Author:
Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.
