With a balance due of more than $10,000, you may be eligible for an optimized payment plan. Instalment agreements require you to pay the balance, penalties, and interest imposed by the IRS each month on a specific due date. The IRS typically charges a default penalty of 0.5% interest on the total amount of debt each month. If you`ve never filed a return, the IRS late filing penalty can be as high as 5% of unpaid taxes due for each month. Penalties are a maximum of 25% for unpaid and unseminded taxes. The IRS charges a daily compound interest rate equal to the short-term federal funds rate plus 3%, which is calculated quarterly. In addition to the interest charged, the IRS will also assess a 0.5% non-payment penalty on the outstanding balance each month or part of a month up to a maximum of 25%. For taxpayers who file on time and have a instalment plan, the penalty drops to 0.25% for each month the remittance plan is in effect. You will also be charged interest and you may be charged a late payment penalty for any tax that is not paid by the due date, even if your request for payment in instalments is granted. Any interest and penalties will be charged until the balance has been paid in full. Current interest rates are 3% per year and you will also be charged a late payment penalty of 1/4% per month. Your application for a instalment payment agreement cannot be refused if the tax you owe must not exceed $10,000 and the following three elements apply. If you don`t make your payments on time or don`t pay a balance due on a return you submit later, you`ll be in default with your agreement and the IRS may take enforcement action, such as.
B the filing of a federal tax lien notice or IRS levy action to recover the full amount due. To ensure that your payments are made on time, you can consider them by electronic cash withdrawal. It may be best to set up a payment plan with the minimum monthly payment you can afford. Track your expenses carefully. In the months when you can afford to pay more, you can make additional payments. This way, you won`t be in arrears with your agreement, but you`ll be able to pay it back faster in the months when you have money left. The interest rate of the IRS payment plan bears your debts on a daily basis until it is repaid. Prioritize your tax refunds, even if it means you`ll have to cut back on some budget items like groceries, food, and entertainment. The sooner you can pay off your debts with the IRS, the more money you`ll save on interest charges. Here are your options. You may be eligible for an individual payment plan by visiting IRS.gov/opa if you do not meet the criteria of a guaranteed payment contract.