The IRS reports that American taxpayers owed $114 billion in back taxes, penalties, and interest in 2020. Given such a high total, collecting tax debt becomes an essential priority for the government. Intent to defraud the IRS can result in hefty fines and jail time. However, most people don’t fall behind on their taxes on purpose. Many people question: can you have 2 installment agreements with the IRS?
Some people miss Tax Day and accrue a small debt. Others make mistakes on their tax returns and receive a bill because of it. Sometimes, life changes by tragedy or misfortune, and tax compliance becomes a comparatively minor problem in the short term. Thankfully, there are multiple ways to tackle the debt with the IRS. The most common is by negotiating an installment agreement.
What Is an Installment Agreement With The IRS?
An installment agreement involves entering a monthly payment plan with the IRS to pay off your back taxes, plus penalties and interest. Under certain circumstances, installment agreements can lift or release specific collection actions on your tax account and property, reduce or even eliminate penalties and get your life back on track. Installment agreements come in different shapes and sizes. Some taxpayers are only eligible for one type of installment agreement but not another. Understanding the basics of installment agreements will help you better understand taxes as a whole.
Can You Have 2 Installment Agreements With The IRS?
Understanding the IRS can be a difficult task, leaving people with many questions to ask. One of the many questions is: can you have 2 installment agreements with the IRS? If a second debt follows up your debt to the IRS – say, for example, you’re due $1,254 for the tax year of 2018 and another $456 for 2021 – you can consolidate your debt and pay off your total past-due balance in a single payment plan. You do not need to make two separate agreements with the IRS. But you do need to act swiftly. It can take time for the IRS to process specific paperwork, including an amendment to an installment agreement.
In many cases, failing to anticipate a new overdue balance can lead to defaulting on your current installment plan. Failing can have dire consequences, including an end to your agreement, loss of certain privileges (such as potential penalty abatement), and collection actions against your account. If you wish to fold your newer tax debt into an existing installment agreement, filing an amendment sooner rather than later can help you pay your debt off faster. Stop accruing interest and penalties, and avoid defaulting on your existing plan. If you are wondering: can I have two installment agreements with the IRS, you first need to know about the different installment agreements.
Consolidating Your Installment Agreements
To request an amendment to an installment agreement and consolidate your overdue tax balances, you can access your tax account online, call the IRS or visit your nearest IRS field office. Nearly everything nowadays is cheaper and faster if done via the Internet than over the phone or in person. In any case, the IRS will require you to complete an application for a revision to your payment plan. Form 9465 is the Installment Agreement Request.
When revising your payment plan online, you can use the Online Payment Agreement tool to adjust your monthly payment amount and payment due date, convert an existing agreement to a Direct Debit agreement and change your payment method. Log into your tax account at IRS.gov and use the Apply/Revise button under your current payment plan through the Online Payment Agreement tool. If you do not have valid log-in credentials for the IRS portal, you can use ID.me to set up your new account.
Types of Installment Agreements
When asking the question: can you have 2 installment agreements with the IRS, you need to consider the types of agreements. The IRS offers taxpayers different types of installment agreements to match their circumstances and means. In ideal cases, the IRS requests that taxpayers attach a bank account or routing number to their tax account. But not every situation is perfect. Negotiate a payment plan with realistic monthly deposits, and opt for Direct Debit, allowing the IRS to pull from your account once a month until the agreement has ended. Let’s look at a few other installment agreements plans the IRS offers.
Streamlined Installment Agreement
A streamlined installment agreement does not require additional information on your part, collected through a Collection Information Statement (Form 433-F). Streamlined installment agreements are only available to individuals with a total tax debt of $50,000 or less, including penalties and interest. Setup fees differ depending on whether you choose automatic monthly payments (Direct Debit) or a voluntary payment method and whether you’ve chosen to set up a plan online, by mail, by phone, or in person. Generally, setting up online and via Direct Debit is the cheapest option. Your setup fees may be waived or reimbursed if you qualify as a low-income taxpayer.
Non-Streamlined Installment Agreement
A non-streamlined installment agreement is for any taxpayer with a tax debt of more than $50,000. The installment requires submitting a Form 433-F, which involves detailing the financial information the IRS needs to determine how you will be able to satisfy your tax liability and your desired monthly payment amount. It can take weeks or months for the IRS to investigate and deliberate a non-streamlined installment agreement. During this time, your debt will continue to grow. If the IRS rejects your proposal, you can appeal the rejection. Tax professionals help minimize the risk of rejection and create an installment agreement that is realistic and favorable to you.
Guaranteed Installment Agreement
Guaranteed installment agreements are not the same thing as a short-term installment agreement (pay your debt within 180 days). Most installment agreements will run for about 72 months – a guaranteed installment agreement requires that a taxpayer can pay their debt off within 36 months. Unlike other installment agreements, there are no setup fees. To qualify, you must prove the financial means to pay off your debt within the time limit and owe less than $10,000.
Partial Payment Installment Agreement
A partial payment installment agreement may be available to taxpayers who cannot pay their entire balance within 72 months. With a partial payment installment agreement, a low-income taxpayer may be able to negotiate smaller monthly payments. The IRS will review your financial information and require that you file a Form 433-F submitting as much information as you can and may require that you sell certain assets before you can qualify for a partial payment installment agreement. The IRS will also review your financial situation every two years, meaning your installment agreement may be subject to change if your condition improves.
What If You Can’t Afford an Installment Plan?
Often time asking the question; can you have 2 installment agreements with the IRS, comes with the conclusion that you can’t afford it. Another option for an installment agreement is an offer in compromise. This agreement is similar to a partial payment plan in that the IRS agrees to charge a smaller monthly amount. However, unlike a partial payment plan, the IRS will not review and potentially alter your plan every two years. However, qualifying for an offer in compromise is usually more complicated.
You must fill out and file Form 433-A, and the IRS will meticulously review your finances to ensure eligibility. It is in your best interest to discuss an offer in compromise with an experienced tax professional before moving forward – if the IRS rejects your request, it can cost a lot of time otherwise spent on a better payment plan.
The IRS may not always meet you halfway on an installment agreement, so choosing the right one for your financial situation is essential. Defaulting on an installment agreement can make it harder to qualify for a new one, and you may be subject to greater financial scrutiny. On the other hand, being too conservative with your monthly payments can prolong your debt. Work with a tax professional to find the proper middle ground.