Are you struggling to pay your taxes on time and wondering if you can set up an IRS installment agreement to make payments over time? While an installment agreement can provide relief, it`s important to understand the associated fees and costs to avoid surprises down the road.
The IRS offers several options for taxpayers who are unable to pay their taxes in full, including installment agreements. With an installment agreement, you can make monthly payments over time to pay off your tax debt. However, be aware that there are fees associated with setting up and maintaining an installment agreement with the IRS.
First, there is an initial setup fee for setting up an installment agreement. This fee varies based on how you choose to set up your agreement and whether you are able to pay your tax debt in full within 120 days. If you can pay your debt in full within this timeframe, there is no setup fee. However, if you need more time to pay, the setup fee can range from $31 to $225, depending on how you set up your agreement.
In addition to the setup fee, the IRS charges interest on the unpaid balance of your tax debt until it is paid in full. The interest rate changes quarterly and is currently 3%. This means that the longer it takes you to pay off your tax debt, the more interest you will accrue.
If you miss a payment on your installment agreement, the IRS can charge a penalty fee of up to 0.5% of the unpaid tax amount per month until the balance is paid in full. This penalty fee can increase up to a maximum of 25% of the unpaid tax amount.
It`s important to note that taxpayers with lower incomes and limited ability to pay may qualify for a reduced fee structure or have their fees waived altogether.
In summary, while an IRS installment agreement can provide much-needed relief for taxpayers struggling to pay their taxes in full, it`s important to be aware of the associated fees and costs. Consider working with a tax professional or contacting the IRS directly to determine the best options for your individual situation.