Direct Debit Installment Agreement: What it is and How it Can Help You with Your IRS Taxes
Dealing with taxes can be a stressful and confusing task, especially if you owe a large sum of money to the IRS. Fortunately, the IRS offers different payment options to help taxpayers settle their tax debts. One of these options is the Direct Debit Installment Agreement.
What is a Direct Debit Installment Agreement?
A Direct Debit Installment Agreement is a payment plan option offered by the IRS to taxpayers who cannot pay their tax debt in full but can commit to making monthly payments. Through this agreement, the taxpayer authorizes the IRS to automatically withdraw a specific amount from their bank account on a specific date each month until the tax debt is paid in full.
How Does a Direct Debit Installment Agreement Work?
To set up a Direct Debit Installment Agreement, the taxpayer must first file all their required tax returns and wait for the IRS to assess their balance due. Once the amount owed is determined, the taxpayer can request a payment plan by filling out Form 9465, Installment Agreement Request. They can also apply online using the IRS Online Payment Agreement tool.
When setting up the Direct Debit Installment Agreement, taxpayers can choose their monthly payment amount and payment date, provided it`s within the IRS`s guidelines. They may also have to pay a setup fee, which depends on how they choose to pay the debt and the length of the payment plan they select.
What are the Benefits of a Direct Debit Installment Agreement?
One of the primary benefits of a Direct Debit Installment Agreement is convenience. Once the payment plan is set up, the taxpayer doesn`t have to worry about sending a payment every month. The IRS will automatically deduct the agreed-upon amount from their bank account, ensuring timely payments and avoiding penalties and interest charges.
Another benefit is that taxpayers who use this payment option can avoid filing a federal tax lien, which could negatively affect their credit score and make it challenging to obtain credit.
Additionally, using a Direct Debit Installment Agreement can help taxpayers avoid more severe collection actions, such as wage garnishment or asset seizures.
Who is Eligible for a Direct Debit Installment Agreement?
Most taxpayers who owe $50,000 or less in combined tax, penalties, and interest are eligible for a Direct Debit Installment Agreement. The payment plan must be paid within 72 months or before the taxpayer`s collection statute expiration date, whichever is shorter.
For taxpayers who owe more than $50,000, they can still apply for a payment plan, but they will need to provide additional documentation to the IRS to support their financial situation.
If you are struggling to pay your tax debt, a Direct Debit Installment Agreement offers a convenient and affordable way to settle your obligations with the IRS. By setting up a payment plan and automating your payments, you can avoid penalties and interest charges and protect your credit score. Talk to a tax professional or visit the IRS website to learn more about this payment option and see if it`s right for you.