The IRS, from time to time, may assess penalties to taxpayers for failing to file a tax return and failing to pay taxes they owe by the deadline provided. If payment isn’t made by the deadline, the balance due is subject to interest and a monthly late payment penalty.
Owing money to the IRS can be stressful, especially when the taxpayer cannot afford to pay their taxes on time, and does not want to go into further debt to pay their taxes off. The IRS does offer a Fresh Start Program that might be able to help you in your tax debt situation.
What is a Payment Plan?
The IRS Payment Plan is an agreement with the IRS that is designed to let taxpayers settle their tax debts over six years. Monthly, taxpayers are required to make payments based on their current income and value of their assets. The goal is at the end of the six years, and their tax debt will be paid in full.
This payment program is set up to simplify the process of paying back hefty taxes debts for taxpayers. The program also helps people avoid losses of owing a tax debt to the IRS, such as interest, penalties, tax liens, seizure of assets, and wage garnishments.
The Fresh Start Program takes into consideration those who are facing hardships, and experience circumstances such an unemployment. In some cases, unemployed taxpayers for more than 30 days could be eligible to have their penalties with the IRS waived. They also could be offered the chance to request a six-month extension to file and pay taxes without fear of IRS penalties.
Options for Repayment
Through the IRS Fresh Start Program, three repayment plan options are offered to taxpayers. The three options allow people the chance to pay off their tax debt legally and satisfactorily, allowing people to avoid further penalties and interest that could cause more financial hardships.
The first option available is an installment agreement, which is an extended installment designed for individuals who owe $50,000 or less to the IRS. Those approved for this option receive up to six years to pay off what they owe without additional penalties and interest and stops IRS collections such as wage garnishments, tax liens, and seizure of assets. The payment that tax pas will make monthly is based on how much money the individual is currently taking along with there assets at their disposal.
The second option available is called an Offer in Compromise (OIC), which is rarely offered, but allows a taxpayer to necessarily make an offer to settle their tax debt for less than what is owed. It is recommended to have a professional tax preparer and submit an OIC offer to the IRS because of the infrequent basis they are accepted.
The third option is a tax lien withdrawal. This option is for taxpayers who have agreed to pay off the entirety of their tax debt through direct debit repayments. Once the direct deposit is set up, taxpayers request in writing to have their tax lien withdrawn directly from their accounts. This option can help taxpayers avoid having their tax debt reported to the three credit reporting agencies.
Paying a significant tax debt can put extreme hardships on a person’s finances, but taxpayers can avoid going into more debt, and settling tax debt through the IRS Fresh Start Program. When dealing with forms and agreements with the IRS, it is recommended to have a professional tax preparer help in selecting the best repayment option.