Back Debt Payment Options: What Are They?
March 26 2016
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If you have back taxes to pay, act quickly – the penalties can severely harm your finances. Avoid accrued interest, liens, levies, and a damaged credit report by choosing one of the payment options below.
IRS Installment Agreement
This is the easiest, and understandably, the most common option when one owes back taxes, especially if you owe $25,000 or less. You will have a monthly payment for up to 72 months to pay off your debt in full. You can submit an installment agreement form with your tax return, or work with the IRS later. There are several installment agreement plans, mostly dependent on the amount you owe. For example, a Guaranteed Installment Agreement is the most basic, as it’s designed for those that owe less than $10,000. All have their own specifics and requirements – consult a tax professional to decide which is best for you, and understand their ins and outs.
Partial Payment Installment Agreement
Requesting a partial payment installment agreements allows you to pay off your tax debt with monthly payments just like regular installment agreements, but for less than is owed. Some use this method in attempt to settle back taxes for less than is actually owed. It also may serve as a viable option when you owe a hefty sum, but want to ensure approval of an installment agreement so that you are at least working to pay off the debt.
IRS Short Term Payment Extension
This isn’t an actual payment plan through the IRS, but it may be part of your personal payment plan to safely start the payback process without accruing penalties. Requesting a 45 day extension can allow you to make several small payments over a longer period of time.
Pay Tax Amount in Full
This is the easiest, but perhaps less common option. If you have the funds to pay your back taxes in full, as well as fulfill your other financial obligations, great. If you don’t, you may want to consider taking out a loan (from a friend, family member, or institution), and paying in full, considering that the penalties for a loan may be less detrimental to your financial situation than the penalties incurred by the IRS.
State Tax Payment Plan
Each state has it’s own system and requirements for repayment plans. If you have state back taxes, research the particulars of what your state offers, and consult a tax professional.
If you owe back taxes, there are always options. Be efficient and proactive, as the penalties for letting them lie will far exceed an installment plan in financial and credit-related damage.
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