What is an Installment Agreement and Who Can Qualify?

If you owe the IRS and can’t pay your tax debt all at once, there is a solution that can help you manage payments over time. This option is called an Installment Agreement, and it provides taxpayers a structured way to resolve their debt without risking aggressive collection actions. Let’s explore what an Installment Agreement is, who qualifies, and two examples that show how it can help.
What Is an Installment Agreement?
An Installment Agreement is a payment plan arranged with the IRS that allows taxpayers to pay off their tax debt in smaller, manageable monthly installments rather than a lump sum. While interest and some penalties continue to accrue until the debt is fully paid, entering an Installment Agreement can prevent more severe consequences like wage garnishments, bank levies, and possibly property liens. The primary goal is to help taxpayers avoid financial hardship by spreading payments over time.
Who Can Qualify for an Installment Agreement?
Most taxpayers with unpaid federal taxes are eligible for some form of Installment Agreement, but certain criteria determine the type of agreement available. Here’s what the IRS considers:
•    Amount Owed: If you owe $50,000 or less in combined tax, penalties, and interest, you may qualify for a streamlined installment plan, which generally requires less documentation for approval.
•    Current Filings: You must be up-to-date with all your tax filings. The IRS requires that all past-due tax returns be filed before an Installment Agreement is approved.
•    Payment Capability: The IRS will assess your income, assets, and expenses to determine if an Installment Agreement is viable. In cases of severe financial hardship, you may qualify for lower monthly payments.
An Installment Agreement can be a practical solution for individuals and businesses with limited cash flow who need time to pay off their debt without further jeopardizing their financial situation.
Installment Agreement Example: How It Works
Let’s look at a hypothetical example to see how an Installment Agreement might play out in real life.
Scenario:
Sarah, a freelance consultant, owes the IRS $30,000 in back taxes after a challenging year financially. She cannot pay the entire amount upfront without depleting her savings and putting herself in financial strain.
Sarah consults a tax resolution specialist, who advises her to apply for an Installment Agreement. The tax resolution specialist checks her transcripts for compliance history and penalty abatement opportunities. Because of the amount owed, the tax resolution specialist can request a payment plan without submitting her financial details to the IRS. Sarah is approved for a monthly payment plan of $500 over five years, which she can afford without compromising her essential expenses.
Result:
By entering into an Installment Agreement, Sarah avoids potential levies on her bank account and other assets. She’s able to make smaller payments each month, which relieves the financial pressure and allows her to pay down her tax debt gradually while avoiding severe IRS actions.
How We Can Help You with an Installment Agreement
Qualifying for an Installment Agreement isn’t always straightforward, and navigating IRS requirements can be challenging. That’s where we come in. At TriState Tax Resolution The Tax Rescue Squad, our Specialists will:
•    Review Your Financial Situation: We’ll analyze your tax debt, income, expenses, and assets to determine the best possible payment plan.
•    Negotiate with the IRS: Our team knows how to present your case to the IRS and negotiate terms that work with your budget.
•    Ensure Compliance: We’ll help you avoid errors in your application, ensuring all forms are filed correctly and on time.
If you owe the IRS and want to explore your options for an Installment Agreement, or other tax relief options, contact us today at 718-841-7317 for a free 15-minute consultation. We’ll help you develop a realistic plan to resolve your tax debt and regain financial stability.