Tax Debt and IRS Payment Plans

Last updated on March 27, 2023

Avoidance of taxes is not the only reason taxpayers fall into tax debt. Miscalculations or erroneously filed tax returns also lead to a tax liability. Even though the reasons for having a tax debt can be many, the IRS does not discriminate. It will keep charging interest and penalties on any amount of taxes that remain to be paid, even after a taxpayer has qualified for a tax debt resolution plan.

Tax debt payment plans are designed to assist taxpayers to resolve their debt, depending on their present financial capability. Taxpayers can pay their tax debt in monthly installments over a period of time, they can postpone payment of tax debt, or they can get a reduction in the amount of tax debt.

It is important to remember that each payment plan has unique qualifying factors. The IRS considers the financial ability of the taxpayer applying for a payment plan, which includes assets, income and liabilities.

Before applying for a tax debt payment plan, taxpayers must be able to fulfill its payment criteria. For example, if a taxpayer making payment through Installment Agreement is not able to pay the fixed monthly installment for a month, as committed, the IRS will charge a penalty for non-compliance and discontinue the payment plan. Therefore, it is important to choose a payment plan only after careful consideration.