If you owe the IRS money in unpaid taxes, you’re probably wondering what your options for paying it off are, other than a lump sum payment. One of the most popular methods is an installment agreement. This is an IRS settlement that allows you to pay off your tax debt in monthly payments instead of all at once. While this is the right option for some taxpayers, there are financial issues you’ll want to evaluate before you make that decision.
Consider the Costs
While they can relieve some of the financial burden of having to pay all your unpaid taxes in a lump sum, installment agreements do come at a cost. For starters, there is a one-time user fee to set up the agreement, which is $105. The one-time user fee is reduced to $52 dollars if your agreement is set up to use automatic withdrawal from your bank account. Individuals who have lower incomes may qualify for a reduced fee of $43 dollars.
For most taxpayers, however, the greatest costs of an installment agreement are not the user fee. That’s because taxpayers are also charged interest on their unpaid tax balance when they set up an installment agreement. Unfortunately, this interest is usually higher than that charged by many banks and other financial institutions. As such, it’s often a better financial move to obtain a bank loan to pay off your tax balance.
Still not sure if an installment agreement is right for you? Turn to Taxation Solutions, Inc. Our tax resolution pros will help you make the best decision for your financial needs!