7 Facts You Should Know About Student Loan Forgiveness Programs
It may be easier to get rid of your student loans than you ever thought possible!
If you owe back taxes, you can catch up using an installment agreement – a tax repayment plan that breaks your debt into manageable monthly payments.
Can’t pay your back taxes in one lump sum without financial hardship? The folks at the IRS have payment plan options known as Installment Agreements to help make repaying back taxes easier. However, penalties ultimately end up making an IRS installment agreement cost more than if you paid off your debt in a single lump sum. That’s the price of delay, just like with a credit card or any other kind of loan.
Still, if a payment plan can get you out of a tight spot, it’s worth it.
If you owe less than $50,000 and are capable of repaying the whole amount, completing an IRS installment agreement is fairly easy. You aren’t required to provide extensive information on income and assets. You can just pay in fixed monthly installments through Direct Debit for up to six years. (Hopefully it doesn’t take that long!)
The penalty for not filing your taxes on time is 10 times the penalty for not paying them on time. Don’t procrastinate just because you can’t foot the bill right now.If you owe more than $50,000, the IRS requires a financial statement that shows you can make monthly payments over a set period of time.
If you’re really willing to go under the microscope, you may qualify for the Partial Payment Installment Agreement. PPIAs allow you to pay back only a portion of your tax debt. The monthly payment requirement depends solely on your ability to pay. In order to determine your ability to pay, the IRS does an extensive review of your financial situation. You then pay installments until the statute of limitations on the debt runs out. After that, even though you have not paid your total tax debt, you are no longer required to make payments. Be warned: This can take 10 years or more.
Before applying for an installment agreement, you should make sure that you can fulfill the requirements of the plan. The IRS may fine you for defaulting, or even force you to negotiate a new agreement. And they’ll require an explanation when you apply for reinstatement, so always try to work things out before they get ugly.
Using an Installment Agreement for the payment of tax debt means that you will need to pay the penalties interest imposed by the IRS on tax debt. Usually, the IRS charges a penalty of 0.5% the total debt amount each month. However, the IRS charges an additional penalty on taxes due that have not yet been filed. Typically, this penalty is 5% of the total amount of unpaid taxes each month, but the IRS can charge a maximum of 25% penalty on unpaid and/or unfiled taxes.
Even after you have begun making monthly payments to the IRS for the fulfillment of tax debt, penalties and interest will still be charged on the amount of tax debt that remains to be paid. So, it is important to pay as much as possible upfront to avoid higher penalties and interest.
If you owe less than $10,000 and can afford to pay your entire tax debt but just need a little time, a simple installment agreement is easy enough to set up on the IRS website. The IRS charges a set-up fee of $52 for direct debit or $120 for payroll deductions.
However, setting up an installment agreement is more difficult if your debt is higher or you are looking to pay less than what you owe. The financial disclosure the IRS requires is complicated and can be tricky for the average person to complete. A tax debt resolution service can help you complete disclosures forms and will help you set up monthly payments that you can afford.
If you’re currently enrolled in an IRS installment agreement and you come into some extra cash, it’s a good idea to make any extra payment. The IRS allows you to pay off all or just an extra portion of your Installment Plan. Doing so will get you out of tax debt faster and, as a result, minimize interest and penalties.
Our resident tax expert, Jacob Dayan, does warn that you want to make sure you’re making an extra payment instead of permanently adjusting your monthly payments.
You never want to change a payment plan to reflect a one-time surplus of extra cash. Because if you can’t pay the same amount moving forward, then you’ll ultimately default on your Installment Agreement. Instead, you can just make extra payments online or by mailing a check to the IRS. You don’t even have to call the IRS to tell them you want to make an extra payment. Just go online or send them a check and your extra payment will be processed and deducted from your balance.Jacob Dayan, Co-Founder of Community Tax
From there, simply follow the prompts to receive confirmation that your extra payment has processed. Make sure to print the confirmation for your records in case there’s any issue in the future.
Dayan says that if you plan to pay off the full amount left on your payment plan in one shot, you should call the IRS first. The reason for this is that the amount you owe today may not be the amount you owe on the date you wish to pay it off. You could leave a remaining balance of penalties and fees that got assessed after you checked the balance.
“If you want to pay the remaining balance in full, call the IRS to get the payoff amount,” Dayan advises. “You’ll need to know the date you plan to pay, so the IRS agent can calculate the proper amount of interest and penalties. Then you can make that payment using the same instructions we provide above.”
Article last modified on June 19, 2019. Published by Debt.com, LLC