When it comes to paying taxes, not everyone can pay the full amount owed in one lump sum. In such cases, taxpayers may choose to set up an installment agreement with the Internal Revenue Service (IRS). This agreement allows taxpayers to make monthly payments over a period of time until the full amount is paid off. However, what happens if a taxpayer has multiple tax debts? Can you have 2 installment agreements with the IRS?
The short answer is yes; it is possible to have two installment agreements with the IRS. However, there are several factors to consider before doing so. Below are the points to consider if you are looking to set up multiple installment agreements with the IRS:
Eligibility
To be eligible for an installment agreement, taxpayers must meet certain criteria. These include being up to date on all tax returns and having a total tax debt of less than $50,000. Taxpayers who owe more than $50,000 may still be eligible for an installment agreement but will need to provide additional financial information to the IRS. A taxpayer must satisfy the eligibility requirements for each tax debt separately if they owe more than one. This means that if the total amount owed across all tax debts exceeds $50,000, the taxpayer may need to provide additional financial information for each debt.
Terms and Conditions
The terms and conditions of an installment agreement will vary depending on the amount owed and the taxpayer’s financial situation. Generally, taxpayers can expect to pay a setup fee and interest on the unpaid balance. The interest rate is determined by the IRS and is currently set at 3% per year, compounded daily. The setup fee and interest for each installment agreement must be paid separately if a taxpayer has more than one installment agreement. Therefore, having two installment agreements will result in a higher overall cost for the taxpayer than having just one.
Monthly Payments
When setting up an installment agreement, taxpayers will need to agree on a monthly payment amount with the IRS. The monthly payment amount will be based on the amount owed, the length of the agreement, and the taxpayer’s ability to pay. Taxpayers will have to make different monthly payments for each installment agreement if they have multiple installment agreements. As a result, the taxpayer will have to make larger monthly payments than if they had just one agreement.
Penalty Abatement
In some cases, the IRS may waive or reduce penalties associated with tax debts. This is known as penalty abatement. Taxpayers can be eligible for penalty abatement if they show reasonable cause for not paying their taxes on time. If a taxpayer has multiple tax debts, they will need to apply for penalty abatement separately for each debt. This means that if the taxpayer is eligible for penalty abatement, they will need to make separate requests for each debt.
Impact on Credit Score
Having multiple installment agreements with the IRS may impact a taxpayer’s credit score. Each installment agreement is considered a form of debt and may be reported to credit agencies. This can have a negative impact on a taxpayer’s credit score, making it harder to obtain credit in the future. Consolidating tax debts into a single installment agreement may be an option for taxpayers who are worried about their credit score. This may have less of an effect on their credit score and help lower the overall cost.
Other Options
While installment agreements are a popular option for taxpayers who cannot pay their taxes in full, there are other options available. These include:
- Offer in Compromise: In this case, the IRS and the taxpayer reach an agreement to settle the tax debt for a lesser sum than what is owed.
- Currently Not Collectible: This is a status granted by the IRS when a taxpayer cannot afford to make any payments on their tax debt.
- Installment Payment Plan: This option allows taxpayers to pay their tax debt over a longer period, usually up to six years. Unlike an installment agreement, the installment payment plan does not require a minimum monthly payment, and the interest rate is generally lower.
If a taxpayer has multiple tax debts, they should consider all of these options before deciding to set up multiple installment agreements. Depending on their financial situation, one of these options may be more beneficial than having multiple agreements.
Seeking Professional Help
Navigating the IRS tax debt process can be complex and overwhelming. Taxpayers need to seek professional help if they are unsure about their options or eligibility for an installment agreement.
Taxpayers may choose to seek help from a tax professional such as a Certified Public Accountant (CPA) or an Enrolled Agent (EA). These professionals can provide guidance on tax resolution/consultation services options and can help negotiate with the IRS on behalf of the taxpayer.
While it is possible to have multiple installment agreements with the IRS, it is important for taxpayers to carefully consider the eligibility criteria, terms and conditions, and overall impact on their finances before doing so. Taxpayers should also consider other tax resolution options and seek professional help if needed. With careful consideration and guidance, taxpayers can find a tax debt resolution plan that works for them and helps them get back on track financially.