Do you owe the IRS? You can pay in monthly installments!
Do you owe a debt to the IRS? You can arrange to pay in monthly installments instead of all at once! The IRS will suggest an installment agreement with a monthly amount to you. However, you don't have to accept that amount if you can't afford it. The Taxpayer Bill of Rights says that you have the right to pay only what you can afford after first paying your reasonable living expenses.
There are 2 basic ways to figure out your monthly payment amount.
If the debt is relatively recent, the IRS will likely automatically accept a monthly amount that divides the debt by 72. For example, if you owe $7,200 for your 2020 or 2019 or even 2018 taxes, the IRS should let you get into an installment agreement of $100 per month.
The law only gives the IRS 10 years to collect a debt. So, if your debt is older than a couple of years, the IRS will want you to get into an installment agreement that will pay the debt before those 10 years expire. In that case, they might not let you use the divide-by-72 method. However, no matter which method is used to determine your monthly amount, you do not have to pay a monthly amount if you can't afford it! If you can’t afford that monthly amount, and you don’t have savings to pay the debt, the IRS should let you pay only what you can afford.
I can't afford my monthly payment. Now what?
The IRS determines what you can afford by comparing your monthly income to your reasonably monthly expenses, using Form 433f and the IRS’s Collection Financial Standards. If your monthly income is more than your monthly expenses, the IRS will assume you can pay the difference each month. But if your monthly expenses are more than your monthly income, then the IRS should allow you hardship status and put you into Currently Not Collectible.
So, if you are talking to the IRS and they are saying you need to pay a monthly amount that is more than you think you can afford, tell them you want to review your income and expenses and that you’ll call them back. Then look at Form 433f and the Collection Financial Standards. The Collection Financial Standards say what the IRS will accept as reasonable for certain types of expenses, and they say that everyone can claim a certain amount for food and personal expenses without having to show receipts or prove it (for example an individual can claim $723 a month for these expenses, and a household of two can claim $1,292).
How does an installment agreement impact my tax refunds?
You should know that an installment agreement will not stop the IRS from taking your refunds, and they will continue to add interest and sometimes even penalties to your debt. Also, the IRS often charges a fee to set up a payment plan. If you are low income, ask if you can have this fee waived or use this Form to request the fee waiver.
If you need help filling out the Form 433f or dealing with an IRS debt, contact us to see if our Taxpayer Support Clinic can assist. And if you want to read more about the Taxpayer Bill of Rights, read here and here.