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What is an IRS Installment Agreement?

Taxpayers that are responsible for an outstanding tax liability with the government are responsible for ensuring they meet the obligation. Overdue tax balances are subject to interest and monthly late payment penalties. The IRS advises taxpayers to pay their balances in full to minimize additional charges. “Penalties are also assessed for failure to file a tax return so you should file immediately even if you cannot pay your balance in full” (IRS.gov, “Topic 202 – Tax Payment Options,” 8/19/2013).

For taxpayers unable to pay their tax debt immediately, the IRS allows them to make monthly payments through an installment agreement, which is defined as an option for taxpayers who must resolve their federal tax liability. Although this option is available, taxpayers increase their tax liabilities (i.e., penalty and interest) when they choose the installment option. The IRS advises taxpayers in Topic 202 – Tax Payment Options to consider financing their tax liability through loans because the interest rate charged on a credit card or home equity loan is usually lower “than the combination of interest and penalties imposed by the Internal Revenue Code” (“Topic 202”).

The IRS offers various options for taxpayers making payments. These options include the following:

  • Direct debit from bank account
  • Payroll deduction from employer
  • Payment via check or money order
  • Payment by Electronic Federal Tax Payment System (EFTPS)
  • Payment by credit card
  • Payment by Online Payment Agreement (OPA)

The IRS charges an installment agreement user fee of $105 when you enter into a standard installment agreement or a payroll deduction installment agreement (“Topic 202”). The different categories of fees are further discussed in a subsequent section of this chapter. Taxpayers may apply using Form 13844, Application For Reduced User Fee For Installment Agreements to request consideration for a reduced fee.

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