IRS encourages taxpayers to pay what they owe as quickly as possible. For those individuals or businesses not able to resolve a tax debt immediately, an installment agreement can be a reasonable payment option. Installment agreements allow for the full payment of the tax debt in smaller, more manageable amounts.
To be eligible for an installment agreement, all returns that are due must first be filed.
Installment agreements generally require equal monthly payments. The amount of an installment payment will be based upon the amount owed and on the taxpayer's ability to pay that amount within the time legally available for the IRS to collect. By law, the IRS has the authority to collect outstanding federal taxes for ten years from the date of assessment. For taxpayers that enter into an installment agreement, the IRS may require a signed waiver to extend the time IRS can collect.
Taxpayers who already have an installment agreement from a previous amount owed may still find help. All of the amounts owed could be included in one installment agreement. Additionally, a Collection Information Statement may have to be completed to further illustrate the financial situation.
As a condition of an installment agreement, any refund due in a future year will be applied against the amount owed. Therefore, taxpayers may not get all of their refund if they owe certain past-due amounts, such as federal tax, state tax, a student loan, or child support. The IRS will automatically apply the refund to the taxes owed. If the refund does not take care of the tax debt; then the installment agreement continues until all of the terms are met.