What to consider when entering an Installment Agreement (IA) to pay tax debt
- Will financial information be needed
- Will a lien be filed
- Will I save money if I full pay the balance
- How does the statute affect my payment
IAs come in four sizes and each has its own requirements and minimum payments. Some require financial information, a lien, direct debit payments and to be paid within the statute. If you can afford the minimum payment, you can avoid the lien, financial information and direct debit requirements.
Financial Information - If you cannot afford the minimum payment, then financial information is needed to determine your ability to pay and a lien will be filed to secure the government’s interest. Like any creditor, the best payment amount is the most an individual can pay, which is in the best interest of both parties. You can avoid financial information by paying down the balance with an upfront payment, resulting in a lower monthly payment.
Lien - The government files a lien to secure their interest in your assets. If your IA is a risky agreement, then a lien will be filed. The streamline and direct debit IAs allow you to enter an IA without the need for a lien or financial information, providing you can afford the minimum monthly payment. If your balance is over the threshold, despite being able to make the minimum payment, a lien will be filed, so it may be beneficial to pay down the balance to prevent a lien from being filed.
Full Pay - Yes, you can save money by full paying the balance, less interest, less penalties and less fees. Plus, you will have no refund offsets if you plan your withholding for the year. You will have less stress knowing you don’t have to worry about liens or levies.
Statute - The older the balance, the higher the payment must be, because the statute keeps getting shorter and shorter each year. It is best to start making payments earlier than later, which will help reduce penalties and interest. The statute year determines the minimum payment, because the IA requires the balance to be paid within the statute. The later the statute date, the smaller the payment, the closer the statute date, the larger the payment, because there is less time remaining.
When entering an IA, there are a number of things to take into consideration, the balance, the statute, the lien, the payment and financial information. The more you understand each of these items and how they factor into your IA, the better decision you will make regarding your agreement.
If you have questions or would like to sign up for a workshop, call me, Nathalie Raygosa, I run Collection Alternatives at 559-614-7729 or visit my website at collectionalternatives.com for more information.