Installment Plans are One Option for Paying Back Taxes

Paying taxes is a fact of life. The difficulty that comes with not paying state and/or federal taxes has severe consequences and longstanding effects on your reputation and credit report.

If you find yourself in the position that you have completed your income tax return and owe more than you can reasonably afford to pay in one installment, you can arrange to send in your return with an initial payment and a contract to pay your back taxes in an installment plan. A good faith effort is always better than non payment of taxes. Once you negotiate a payment arrangement you have to ensure that you follow this agreement through to completion.

State taxes and federal taxes have different rules about installment plans. Many states do not offer the option of a payment plan. You will have to check your state regulations to see if this is an option where you live. The best thing to do if you can’t afford your taxes and owe both state and federal is to pay the state taxes in full and arrange a payment plan for the federal back taxes.

You will need to take the following steps to arrange for an installment arrangement:

• Go to the irs.gov site and print the following IRS forms.
• Installment Agreement Request form.
• Federal and State Income tax forms.
• Complete your income tax forms as you normally would.
• Determine the amount that you own and the amount that you can afford to pay now and identify the amount that you can pay monthly.
• Identify the length of the installment plan and the day each month that the IRS can expect this monthly payment. You should work it out so you can pay off the amount you own before next years taxes are due. Aim for a one year time frame for payment completion of your back taxes.
• Complete the Installment Agreement Request form. Include the monthly amount and the due date on the form. Be aware that there is a small fee of approximately $40.00 to participate in the installment plan. Additionally there will be interest charged on the balance due.
• The form will ask if you want the payment automatically deducted from your bank account; if so you will include your bank account information on the form If you need to have this automatically deducted to ensure these payments are sent timely, you should strongly consider this payment option.
• Sign your income tax forms and your installment agreement form.
• Prepare your first monthly payment.
• Attach the Installment Agreement Request form to the front of your income tax return form and mail these forms in with your initial payment.

Ensure that you follow the guidelines of your installment agreement. It is possible that even after one late or missed payment that your contract will be immediately terminated. It is advisable that you not be late with your payments for back taxes. After completing all the work to arrange for the payment plan not following the contract could put you back in the same position of defaulting on your taxes.

This article is provided for Taxdebthelp.com, a site designed to help with tax debt. If you are in need of IRS debt help, this site can help you figure out what your options are.

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