When you’ve determined the tax, penalty and interest is correct it’s time to figure out how you’re going to pay the balance due. Your options are:
- Write a check
- Installment agreement (payment plan)
- Currently not collectible
- Offer in Compromise
- Bankruptcy
- Innocent spouse
The first needs no explanation, if you have the money.
When you don’t have the funds to pay the balance due and you don’t qualify for the last four options an installment agreement needs to be entered into in order to avoid garnishments, levies, and liens.
If your total liability is less than $ 50,000 and you can pay it off in monthly installments within six years you can get a streamline installment agreement without providing the IRS with your financial information.
If your liability is over $ 50,000, or you cannot pay it off in full within six years you will need to provide your financial information. For an individual it is a Form 433-A Collection Information Statement for Wage Earners and Self-Employed Individuals or Form 433-B Collection Information Statement for Businesses. These will show the IRS your ability to pay on a monthly basis. There are occasions when the monthly payment might be more as reflected when submitting these forms than the streamline installment agreement mentioned in the above paragraph. If that is the case you might want to go with the streamline agreement to keep your monthly payment lower.
Don’t ever agree to a monthly payment that is more than you know you can afford every month. You can always pay more. If you pay less or skip a payment you are in danger of having the installment agreement defaulted and the whole collection process starts over. It is also harder to get a second agreement after a default.
