Most taxpayers that have a tax debt can pay it in full. As such, there are generally two options for resolution: taxpayers can pay their entire tax debt at once or they can pay what’s owed in monthly installments.
Paying in a single payment saves money on penalties and interest. The IRS continues charging these fees even after a taxpayer has qualified for an installment plan and has begun to make payments. In this instance, both penalties and interest will be charged until the amount owed is paid in full.
Satisfying a tax debt in monthly installments is a good option for those who can pay, just not all at once. Depending on the amount of tax debt, the length of time one is given to pay can vary. For larger amounts, the IRS provides more time to pay. The obvious advantage of paying tax debt through an Installment Agreement is that the taxpayer gets more time to pay.
The sooner one can pay off a tax debt, the better. The benefits of paying early are not only less in penalties and interest, but also the avoidance of IRS collection actions. The IRS can ultimately place a lien against a taxpayer or even garnish his or her wages.
Taxpayers who can pay in full may request penalty abatement to get some reduction in their tax debt. When it comes to resolving larger tax debt amounts, it's best to seek the help of a tax professional.
Labels: Back Taxes, Installment Agreement, IRS, Taxpayers