IRS Installment Agreements: Which one is right for you?

If you need time to pay off your tax debt and cannot pay all at once, an installment agreement (IA) may be a good idea. But our of the four types of IA which one is right for you?

First, in order to qualify for an IA, you’ll need to be up to date on your tax filings (typically the past 5 years), have all current-year estimated tax payments made, and agree to file and pay all future years’ tax returns on time during the agreement.

If you meet those qualifications, your chances of getting an installment agreement are good. The IRS wants to approve payment plans so it can start collecting that tax revenue. But there’s more than one type of IA and the requirements for each are unique.

Guaranteed Installment Agreement

A guaranteed IA is just what it sounds like, guaranteed. Internal Revenue Code (IRC) section 6159(c) requires the IRS to accept a proposed installment agreement if you meet the following criteria:

• You haven’t entered into an IA in the past 5 years
• You owe $10k or less in taxes (not including interested and penalties)
• You can’t afford to pay the taxes in full
• You agree to pay off the amount within 3 years
• You haven’t failed to file or pay your taxes in the past 5 years

Notice that last requirement? Your taxes must be paid on time for the past 5 years. That means a guaranteed installment agreement is a great choice if you can’t pay this year’s tax bill all upfront but it’s not going to be an option for paying off unpaid back taxes from a prior year.

Streamlined Installment Agreement

If you can’t meet the requirements for a guaranteed IA, you may still qualify for a Streamlined Installment Agreement. There isn’t guaranteed acceptance but it is a streamlined application process that doesn’t require extensive income documentation. You may qualify for streamlined if:

• You owe less than $50k in individual taxes or less than $25k in business payroll taxes.
• You can pay it off within 6 years
• Your installment payments are sufficient to pay it off in that timeframe

This agreement is “steamlined” because it’s simpler to file and quicker to receive approval from the IRS. This is also true of the guaranteed agreement.

Non-streamlined Installment Agreement

If you owe more than the amounts listed above or cannot pay off your debt in 6 years, you’ll need to complete the necessary paperwork for a non-streamlines installment agreement. This process includes additional income verifications, negotiations with the IRS, and can take a few months to be approved.

This will involve Form 433-F with extensive information about your income, debt, expenses, etc. so the IRS can determine whether or not you qualify. You can make this process smoother by talking with a qualified tax advisor in advance. They can gather information and estimate whether you’ll qualify based on the same standards the IRS will use.

Partial Pay Installment Agreement

Depending on your situation, you may be fortunate enough to qualify for a partial payment IA. Basically, this is a non-streamlined agreement (with income verification) that results in paying less than the full amount you owe.

Why?

Because your payments are based on available income and the IRS has a limited time frame to collect taxes. If the time remaining in the 10 years statute of limitations will not allow for full repayment based on your financial situation, they may accept an installment agreement that totals less than your remaining tax debt, sometimes only a small fraction of what you owe.

Which type of IA is right for you and which one you qualify for will be based on your unique situation. Before you reach out to the IRS or respond to their letters, sit down with a qualified tax advisor and go over your options. It could save you thousands of dollars and spare you the damage of a tax lien or wage garnishment.