If you're unable to pay your tax bill right away, the IRS has several debt relief options. Two commonly used plans are the partial payment installment agreement (PPIA) and an installment agreement. Let's look at the difference between these two options, including which situations each one is best suited for.
Installment Agreement: Overview
An installment agreement allows you to pay your full tax debt over time through monthly payments. The IRS offers various types of installment agreements based on the amount owed:
- Guaranteed Installment Agreement: For taxpayers owing $10,000 or less, allowing repayment over a maximum of 36 months.
- Streamlined Installment Agreement: Available for debts up to $50,000, permitting repayment over up to 72 months.
- Non-Streamlined Installment Agreement: For debts exceeding $50,000, necessitating detailed financial information and subject to IRS approval.
Pros of Installment Agreements
- Can help prevent aggressive IRS actions like wage garnishments or asset seizures
- Establishes a clear, consistent monthly payment plan
- Failure-to-pay penalty rate is reduced during the installment period
Cons of Installment Agreements
- Interest and penalties continue until the debt is fully paid.
- For higher debts, the IRS may file a federal tax lien.
Installment agreements are best for taxpayers who can afford to repay their full tax liability over time and prefer a structured payment plan to manage their debt.
PPIA Overview
A PPIA[CW1] is designed for taxpayers who cannot pay their full tax debt within the statutory collection period (generally ten years). Under a PPIA, the taxpayer makes monthly payments based on their ability to pay, which may be less than the total debt owed. If the debt is not fully paid by the end of the collection period, the remaining balance may be forgiven.
Pros of PPIA
- Lower monthly payments tailored to the taxpayer's financial situation
- Any remaining balance after the collection period expires may be forgiven
Cons of PPIA
- Requires detailed financial disclosure and proof of inability to pay the full debt
- Potential IRS review every two years with adjustments to payment amounts
- IRS is likely to file a federal tax lien to secure its interests
A PPIA is best suited for taxpayers who cannot afford to pay their full tax debt within the collection period and can demonstrate limited financial resources.
Choose the Best IRS Payment Plan with a Tax Attorney
At Gabaie & Associates, LLC, we help taxpayers like you deal with tax debts by choosing the best payment plan suited to your financial situation. We'll do a thorough overview of your finances and help you prepare your request to the IRS. Call us today at (410) 358-1500 or contact us via our form to schedule a free consultation.
