You finish filing your income tax return, when you’re met with a harsh surprise: you owe more than you’d expected. A lot more. In fact, you’re not sure how you’re going to pay it. What do you do?
Fortunately, the IRS has created some options for tax payers in your situation. You can set up a plan to pay off your taxes in installments. We’ve laid out two common, long-term payment plans below:
Guaranteed installment agreement:
This agreement is for individuals with a tax liability of $10,000 or less. With this plan, you get three years to pay off the money you owe. You can calculate the minimum monthly payment by taking the total owed divided by 36 months.
You can apply for this type of agreement if, over the past five years:
- You’ve always filed your tax return,
- You’ve paid the taxes you owe and
- You haven’t entered into another tax installment agreement.
Streamlined installment agreement:
If you owe more than $10,000–or if you need more than three years to pay off the taxes you owe–a streamlined installment agreement might be a better option for you. This type of agreement gives tax payers six years to pay off taxes up to $50,000. To calculate the minimum monthly payment, take the total tax liability and divide by 72 months.
If you owe more than $25,000, there are some limitations to this agreement:
- Corporations that are still in business cannot apply.
- Tax payers must submit payment either by direct debit or payroll deduction.
- Tax payers must have no defaulted payments on an installment agreement over the previous 12 months.
Contending with IRS debt can be stressful, but an experienced tax attorney can help to ease the process.