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Tax payment plans can seem like a godsend for anyone behind on tax payments, but they are far from a perfect way of handling tax debts. Too few people in Missouri, however, even realize they are available as an option, much less how they work, leaving them vulnerable. This article aims to debunk several of the most common and problematic myths and misconceptions surrounding tax payment plans, including:
- Why you can always get a payment plan, but it might not be a fair one.
- Why a payment plan will and will not stop in terms of penalties, interest, and garnishment.
- The conditions for putting a payment plan in place.
Misconception #1: It Is Always In My Best Interest To Set Up A Payment Plan Directly With The IRS
While it is almost always possible to get a payment plan approved by the IRS, it might not be in your best interest to do so without legal help. While you can always get a payment plan set up if you are willing to pay all your tax debts back in full, the problem often involves getting a payment plan set up that you can actually afford to pay for.
If the IRS does not ask you for your financials, then they are not basing anything on your ability to pay them back. They are just setting up a payment plan to make you pay every last penny back, whether you can realistically afford the monthly amount or not.
While the IRS will definitely approve a repayment plan directly, it might not be in your best interest to accept the plan under those conditions. Instead, you should reach out to a tax resolution lawyer to help set up a plan that you can afford, and that will still be approved.
Myth #2: Setting Up An IRS Payment Plan Will Stop Penalties And Interest On Unpaid IRS Taxes
Unfortunately, this is not at all true. Setting up an IRS payment plan will not stop penalties and interest from accruing on unpaid IRS taxes.
An IRS payment plan does diminish the penalties, cutting the penalty for failure to pay in half from 0.5% to 0.25%. However, it will do nothing to stop the interest.
Attorney Lance Drury is a skilled tax resolution attorney with offices throughout Missouri who has helped countless struggling families and businesses just like yours handle back taxes and tax debts. He knows tax repayment plans backward and forwards and has built a career on standing up for ordinary taxpayers up against state and IRS bureaucracy.
Struggling with back taxes? Call The Law Offices Of Lance R. Drury today to schedule an initial consultation to discuss a repayment plan.
Myth #3: The IRS Cannot Cancel An Installment Agreement After It Has Been Approved
Unfortunately, this is false. The IRS can and will sometimes automatically cancel an installment payment plan if you have defaulted on it. Two things can cause the IRS to say that you have defaulted on your installment agreement.
- Failing to pay every month on the installment agreement. If you are not paying the minimum monthly payment to them.
- Incurring more tax debts or failing to be compliant moving forward.
One condition of any agreement with the IRS is 100% future compliance. This means you have to file and pay on time. If you do not, the IRS will assume that if you cannot pay your current taxes, they should not give you any type of agreement on the back taxes.
Myth #4: The IRS Can Still Garnish Wages Or Freeze Bank Accounts Even On An Approved Payment Plan
No, the IRS cannot garnish your wages or freeze your bank accounts if you are currently paying them back on an approved plan.
As long as you are not incurring any liability in the future and paying at least the minimum monthly payment you agreed to, that stops any type of garnishment or seizure of assets. The IRS cannot come after you, and they certainly cannot garnish your wages or freeze your bank accounts if you are compliant and prompt with your payments moving forward.
Myth #5: There Is A Minimum Amount Of Tax Debt Required To Qualify For An IRS Payment Plan
No, there is no lower limit to the amount of debt you have to have before the IRS will agree to a payment plan.
Even if you only owe $1,000, you can pay this amount off over time. However, if you set up a payment plan for such a small amount, you are going to incur additional penalties and interest, and these will be hefty. If at all possible, it may be better for you to pay off this debt with a single payment.
Myth #6: An IRS Payment Plan Will Negatively Affect Your Credit Score
It is understandable to be worried about your credit score; fortunately, this myth is false, and a repayment plan will not negatively impact your credit score. Since 2018, the IRS can no longer report liens, so a repayment plan will not show up on your credit score.
Your repayment plan will be visible on bank records, and this proof of your ability to repay the IRS may work out in your favor. If you’re seeking a bank loan, these records can provide the bank with more trust in your ability to pay back debts and potentially allow you to secure a loan from them more readily.
What Are The Key Benefits Of Setting Up A Payment Plan Rather Than Ignoring The Debt?
Payment plans may not be perfect or simple, but if you agree to a payment plan that you can afford and manage to keep up payments and compliance, you will no longer see wages garnished or accounts levied.
On the other hand, if you ignore your tax debt, penalties and interest will only continue to build and compound. Since the failure to pay the penalty is cut in half once you have a payment plan set up with the IRS, it is almost always going to work out in your favor compared to ignoring the debt.
That said, you need to make sure that any plan you agree to is within your capacity to pay. As your tax resolution lawyers, we can help you negotiate and set up a plan that is adapted to your needs and optimized for your situation.
Behind On Your Taxes In Missouri? Set Up A Repayment Plan With The Help Of A Specialized Attorney.
For more information on IRS payment plans in Missouri, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling 573-883-3056 today.
