When you get into debt with the IRS it’s not a happy time. There’s stress and more stress as you worry about how you’re going to pay the income tax debt. There’s a lot of uncertainty too about what your options are and what kind of penalties you might incur. As I said, it’s not a happy time.
Fortunately, all is not bleak. The IRS is surprisingly reasonable when it comes to paying back your tax debt. They in fact allow you to enter into a repayment agreement to do just that.
Now there’s not a lot of negotiation room with one of these agreements. The IRS pretty much dictates the terms. But these agreements can be life-savers when you find you don’t have the cash to pay off the debt or the ability to borrow it either. There are a couple things to keep in mind however.
The first thing to keep in mind is that these tax settlement agreements are not open-ended. They’re usually set up so that you pay off your balance within a five year period. That means the monthly payments can be a bit on the high side.
Another important point is that once you begin one of these agreements, you must be very careful not to miss a payment as it will void the agreement and make you immediately liable for the complete balance amount.
And then there’s the special requirement that calls for you to pay off all of your future tax liabilities in full and on time. That means you need to get your taxes in order for the new tax year. You can’t let your tax liability go unpaid during the next year or your repayment agreement will be voided.
IRS repayment agreements come with a cost. Interest and penalties continue to accrue while you have an outstanding balance. But together they’re on par with normal loan rates so you won’t get skinned alive. And if you want to make extra payments, you can do so to further reduce the balance.
Settling a debt with the IRS can be a difficult time in anyone’s life. The IRS has more power than simple debt collection agencies and they use it. Thankfully when other options aren’t available there’s still a repayment alternative you can turn to.