After finishing your taxes, you come to find out that you owe money. If you owe more than you can pay in one lump sum, you can set up a payment plan with the IRS to pay it off. If you do not pay it off before the April tax deadline, you will have to pay interest on what you owe. However, if you opt for a repayment plan, the interest will only end up being .25 percent according to Liberty Tax Service. Here are some of the important debt thresholds that can affect how much information you will need to provide to set up a repayment schedule.
Tax Debt Thresholds
Typically, any requests for a repayment plan that are made to pay off amounts of $10,000 or less are approved immediately and must be paid off within 72 months. If it ranges between $10,000 to $25,000, you may be able to qualify for a plan that doesn’t require additional financial information and has to be paid off in 72 months. If it’s between $25,000 and $50,000, you will be required to fill out the Form 9465-FS. This form details your income and expenses, and you are required to pay it off in 72 months. In the event that you owe more than $50,000, then you will have to fill out the Form 433-A, which provides the government with more detail regarding your finances.
Minimum Payment, Setup Fees, And Payment Methods
The minimum payment you are required to pay is determined by taking the total amount you owe and dividing it by 72. Just like most things involving debt payments, it is always encouraged to pay more than the minimum if you can afford it. Moreover, if you have a chunk of cash stored away that you want to use, you can pay a portion of it off before you start your repayment plan.
To set up a repayment plan, you will have to pay certain setup fees depending on the plan that you get. As of the January 1 of this year, some of these fees have gone up. To setup up a regular installment agreement, you will have to pay $225. For a regular installment plan with direct debit, you will need to pay $107. For a low-income installment agreement, the fee is $43. The online payment plans for a regular payment plan and a regular installment plan with direct debit are $149 and $31 for the latter. A restructured or a reinstated installment agreement is $89, and for a restructured or reinstated low-income installment agreement the fee is $43. If you are able to pay back the amount that you owe in 120 days or less, there is no charge.
The two common ways to set up payment is by either a withdraw from your bank account or a paycheck withholding. To set up the foremost, you use the Form 9456 to request a repayment plan where you can provide your bank account information. For a withholding on your paycheck, you should talk to the accounting department at your company to determine if this option is available.