You’ve been an upstanding citizen. You pay your taxes on time each year, and you have a good track record with the IRS.
But this year was unusual. You went through a number of major changes in circumstance, and you didn’t adequately assess how these changes would affect your bottom line come tax season. It turns out you owe considerably more than you expected – and you’re not able to pay it all right away. What do you do?
Installment plan
Fortunately, the IRS has planned for such unforeseen scenarios. You’re not expected to take out a second mortgage on your home to pay off your taxes. Instead, you can set up an arrangement with the IRS to pay your taxes off in installments.
How much time do you need?
If you are able to pay off your tax debt within 120 days, then you may qualify for a short-term payment plan. If you need more time to pay it off, then you could be eligible for a long-term installment agreement. We’ve outlined two common long-term installment agreements below:
Guaranteed installment agreement
This is an agreement for tax payers owing a maximum of $10,000. Under this agreement, you have 36 months to pay off your tax debt. The payment plan is monthly – each payment is equivalent to your total tax liability divided by 36.
Streamlined installment agreement
This agreement is suited for tax payers who have higher tax debt – up to $50,000. It can also be suitable for individuals with tax debt under $10,000 but who need more than three years to pay it off. With the streamlined installment agreement, tax payers have 72 months (six years) to pay off their debt. Payments are also monthly, calculated by taking the total tax liability divided by 72.
If you’ve run into unexpected tax liability, your first line of action is to talk to an experienced tax attorney to help you determine which type of resolution is best for your circumstance.