california tax attorney

Automatic IRS Installment Agreement

An automatic IRS installment agreement is an agreement by which taxpayers can make monthly payments utilizing one of three online payment options as well as self-certifying through an online payment agreement application, which allows taxpayers to work out their payments online rather than face-to-face with a representative. The IRS offers an online payment agreement tool that requires information specific to the taxpayer such as balance due notice from the IRS, Social Security or Taxpayer Identification Number, and a personal identification number generated online.

The online payment agreement provides the taxpayer with three payment options: pay in full, short-term extension, and monthly payment plan. When a taxpayer pays in full, specifically within 10 days, he or she saves on interest and penalties. When a taxpayer requests a short-term extension, no fee is charged, but he or she can expect to pay additional penalties and interest will continue to accrue. Lastly, when a taxpayer chooses the monthly payment plan option, he or she will be charged a user fee, which is $43; it is added to the amount owed. The interest and the penalty will continue to accrue on the unpaid balance.

The automatic installment agreement is also specific to two other types of agreements: Payroll Deduction Agreement (PDA) and Direct Debit Installment Agreement (DDIA). With the former, if the taxpayer is a wage earner, the IRS strongly urges the taxpayer to submit Form 2159, Payroll Deduction Agreement. It is the responsibility of the taxpayer to “determine whether their employers will accept and process executed agreements before agreements are submitted for approval and finalized” (IRS.gov, “Part 5. Collecting Process, Chapter 14. Installment Agreements, Section 10. Payroll Deduction Agreements and Direct Debit Installment Agreements,” 8/21/2013). Taxpayers are encouraged to hand deliver the agreement to their employers, who are also allotted enough time to prepare their bookkeeping.

A Direct Debit Installment Agreement is used when the payroll deduction agreement is not practical. This agreement is also used when taxpayers have defaulted on a previous agreement. “The Direct Debit Installment Agreement (DDIA) system is a means by which funds are automatically debited from a taxpayer’s checking account for the agreed upon installment amount” (“Section 10. Payroll Deduction Agreements and Direct Debit Installment Agreements”). There is a user fee charged with use of this type of agreement. The great benefit of using the DDIA is there is less of a chance of the taxpayer forgetting to make a payment or missing a payment altogether. The Electronic Federal Tax Payment System (EFTPS) is used for processing the DDIA. The EFTPS is a free federal tax payment processing tool initiated by the U.S. Department of the Treasury. Federal taxes can be paid using the system (EFTPS.gov, “About EFTPS,” 8/21/2013).[1]


[1] For more information about the EFTPS, visit the website or review the guide. The link is available here: http://www.irs.gov/pub/irs-pdf/p966.pdf.

Read More Articles on This Topic

Download our guide "The 10 Benefits of Hiring a Tax Lawyer"

If you are struggling with tax problems, it is important to get help quickly. Click the image below to learn exactly how a tax lawyer can help with your IRS or state tax issues.

 

Subscribe to Email Updates

Blog Archive

Recent Posts