Many of those with back taxes know about the payment plans the IRS offers, called installment agreements. This option has saved many from accruing extra interest and getting in deep tax trouble. But before you file that Form 9465, read the tips below to ensure you’re making the best choice for your financial situation.

Facts to Know about IRS Payment Plans

1. Guaranteed Acceptance

If you owe $10,000 or less in taxes, your acceptance may be guaranteed, as long as you meet a few requirements. You must have filed all tax returns on time in the past five years, paid any income tax due, and have not previously requested an installment plan. Further, the IRS must easily conclude that you cannot afford to pay your taxes in full.

Remember, the IRS has the authority to deny you a payment plan in the case of missing or inaccurate information, or perhaps you’ve already had an installment plan and defaulted on it.

2. 10 Year Collection Period

By law, the IRS only has 10 years from the date your tax is assessed to collect. Therefore, the monthly payment plans will be determined by how much is necessary to pay off in this timeframe. The limit on the collection period is not an invitation to ignore your taxes or forego a payment plan; the IRS will employ liens and garnishments to receive the money owed.

3. Fees, Interest, and Penalties

The IRS charges a fee for utilizing a payment plan, unless you pay it off in under 120 days. Otherwise, you will pay a $52 fee for setting up a debit card agreement or $105 for a standard or payroll deduction agreement. If you qualify as a low-income earner, you may be able to reduce this to $43. Although a payment plan offers you a path to freedom, you will still accrue interest and penalty charges, as your payment will still technically be late. This is why you must always pay the maximum amount each month, or you will end up with an even longer payment period.

4. Owing More Than $50k

If you owe more than $50,000, it’s slightly more of a hassle to apply for an installment agreement. You must provide additional information for a more thorough look into your financial situation. You will fill out Form 9465-FS and a Collection Information Statement, Form 433-F.

5. Terms and Conditions

There are several terms and conditions that apply, in addition the the above. For starters, your tax refunds will be applied to your tax debt until it is paid off. Also, you need to pay the minimum amount each month and on time for your payment plan to continue. Make sure you read the agreement and all documents provided by the IRS, so that you understand the implications of the agreement.

IRS Payment Plans: Knowing the Facts

If any of these facts are a dealbreaker for you, sometimes an offer in compromise or temporary delay is the best option, especially if you don’t owe over $10,000. Consult your trusted tax professional to give you the best advice for your circumstances – the important thing is to act fast.