Payment Plan

[Christian]

Is there an IRS form for a taxpayer needing a payment plan? I rarely have anyone who cannot pay on time and don't recall if they have one although they have a form for everything else.

[rfassett]

9465?

[JohnH]

Or they can file without paying (or with a partial payment), wait for the notice, and just call IRS. The phone number will be right on the notice. If they owe less than $25K and can pay off within 5 years, IRS will usually set one up right on the phone. Saves paperwork and the client gets instant verification that they are OK with the IRS.

[jainen]

>>Is there an IRS form for a taxpayer needing a payment plan?<<

In my opinion, nobody needs a payment plan unless and until they can't pay for an extended period of time. The fee is $105 and you get locked into a schedule you may have trouble with later.

And you know what? The IRS agrees with my opinion! See the instructions to Form 9465 for details on several options.

[SFA]

Per IRS installment agreement: "When you pay your taxes after the due date, we charge a penalty of 0.5% (reduced to 0.25% on installment agreements) of the unpaid amount due per month, up to 25% of the amount due."

A small concession, but installment agreements also do not show up on credit reports, and the interest rates are less than credit card financing. And taxpayer always has the option to pay off the balance early.

I recommend that my clients negotiate for the lowest monthly payment possible, then pay as much as possible. I have one client who pays $25.00/month on a $10,000 balance due. He is in a hardship situation but not eligible for an offer-in-compromise.

[Lion EA]

The set-up fee is less ($42?) if done online.

[JohnH]

Per IRS installment agreement: "When you pay your taxes after the due date, we charge a penalty of 0.5% (reduced to 0.25% on installment agreements) of the unpaid amount due per month, up to 25% of the amount due."

A small concession, but installment agreements also do not show up on credit reports, and the interest rates are less than credit card financing. And taxpayer always has the option to pay off the balance early.

I recommend that my clients negotiate for the lowest monthly payment possible, then pay as much as possible. I have one client who pays $25.00/month on a $10,000 balance due. He is in a hardship situation but not eligible for an offer-in-compromise.

Very wise advice on all counts. I see you take an interest in giving your clients sound financial information. It's always fascinated me to see tax preparers panic over a .25% per month charge simply because the IRS calls it a "penalty". In fact there's no difference between a non-deductible penalty and a non-deductible consumer interest. IRS has been very shrewd in pulling the wool over the eyes of tax preparers and taxpayers with this "penalty" wording. The main purpose of the FTP penalty is to boost the effective interest rate - that's really all it does.

I've seen preparers urge people to pay tax liabilities with credit cards, home equity lines, and other emergency methods when they would actually save money by setting up an an installment agreement. Even the $105 set-up fee isn't very significant when spread out over the life of the agreement if the client owes several thouand dollars. The current interest rate is 4%, and the .25% penalty equates to a 3% APR. So for an effective 7% APR they get an unsecured loan which doesn't show up on their credit record and they keep their credit lines (if any) open for true emergencies.

[michaelmars]

and after 10 years it goes away so you never wind up paying it all.