For taxpayers, both individuals and businesses, who owe back taxes, an option to repay the amounts owed is to agree to a payment plan with the tax authorities.
The duration of the Internal Revenue Service (IRS) payment plan ranges from 180 days (6 months) to 72 months (6 years) depending on the amount of back taxes you owe. Whether it is an individual or a business paying will also determinate the type and duration of the payment plan.
The IRS has brought up tax settlement plans for people who are sure to be able to pay their owed taxes within 180 days and those who need more time. Therefore, if you owe taxes, this may be the optimal way of approaching the situation,as you can work out a plan based on your income and finances.
What is an IRS payment plan?
The IRS payment plan is an easy way to pay back taxes you owe to the Internal Revenue Service. This plan only applies to federal taxes, therefore, if you owe state or local taxes, check your state or local government for a suitable payment plan.
This payment plan does not stop the interest and penalties. However, they reduce as your tax debt decreases. This payment plan is optional, and it is important to note that it only applies where it has been approved by the IRS. You can apply online or by filling out a form and mailing it to the IRS.
IRS payment plans for individuals and businesses
Payment plans are available to individual and business taxpayers depending on their payment ability.
Short-term plan
This plan is only available for individuals and not for businesses. It has a payback duration of 180 days.
The short-term plan is for people who owe less than $100,000 in taxes, penalties, or fees. Unlike the long-term plan, there is no set-up fee for this plan. However, necessary penalties and interest will still be charged. Before choosing this plan, ensure you are capable of paying back within 180 days.
Some features are unique to the short-term plan. They include:
- Online application, in addition to application by mail, phone, or in person (online application is not possible with business)
- Payment is made directly from savings or checking accounts (Direct Pay); by EFTPS; by debit or credit cards, checks, or money orders.
- Individuals who owe $25,000 and above must use direct pay.
Long-term plan
This plan is also known as an installment agreement. It is available for both individuals and businesses.
Individuals
For taxpayers whose total balance is less than $50,000 in combined tax, penalties, and interest, this plan enables them to pay monthly for up to 72 months. Individuals under the long-term payment plan are usually advised to make payments using direct debit (automatic bank withdrawal) as it is easier than sending payments monthly. However, the required amount for direct debit is $25,000 and $50,000.
Businesses
Business taxpayers whose total balance is less than $25,000 in combined tax, penalties and interest. They are to make monthly payments for 24 months. They can pay using direct debit with an amount ranging from $10,000 to $25,000 or using the EFTPS payment methods which include; checks, money orders, or debit/credit cards.
