What Is A Direct Debit Installment Agreement?

Is the IRS coming at you with a vengeance, but you’re simply unable to pay your tax debt at once?

This situation can be horrifying to deal with. Considering most people see no difference between the IRS and a mob boss, we’re willing to bet you’re losing sleep over this matter.

Fear not, though. In spite of its reputation, the dreaded governmental agency offers plenty of opportunities for the taxpayer to resolve the issue in more manageable ways. This includes a payment plan that allows you to make monthly payments and pay off your due taxes in increments. 

There are numerous variations here at play, which means a tax attorney can negotiate a long-term or a short-term agreement, and most conveniently, an IRS direct debit installment agreement.

Stay with us today, as we’ll clarify the differences between the installment agreements and explain what is a direct debit installment agreement. 

Types of IRS Installment Plans

Every tax situation is different, which is why the IRS offers diverse installment options. Generally speaking, to be eligible for these plans, you must not be bankrupt and must have no issues with tax filings. 

The IRS installment plans include:

1. Short-term installment plan

If you have no means to pay your tax debt now and need just a bit more time, a short-term payment plan is the best option to restore your tax balance. Under this plan, taxpayers are given up to 180 days to pay off the remaining balance. 

Taxpayers who owe less than $100k in taxes, interest, and penalties are eligible for this plan.

2. Guaranteed installment agreement

For smaller debts under $10k, you can leverage a guaranteed installment agreement that provides taxpayers three years to resolve their debt. 

This installment plan is available to those who paid their taxes on time for the previous five years. 

3. Long-term installment plan

Some taxpayers are dealing with larger tax balances, which makes the option of paying off the balance for up to six years or more the best choice. 

This plan requires a setup fee that depends on the means of application (phone, mail, or online) and the payment method. 

Debit and direct payments set up through phone or mail costs only $31 while paying by credit or check and applying online requires a fee of $225. 

4. Partial-pay installment agreement

In the event a long-term plan can’t help you pay the full amount, it’s also possible to set up a partial-pay installment plan that allows you to pay a portion of the debt with the remaining balance being forgiven. 

The only downside to this is the complex application process that requires investigation and extensive negotiations with IRS agents to determine how much of the debt you can realistically resolve while considering your overall financial situation. 

How A Direct Debit Installment Agreement Differs From Other Payment Plans

Before divulging the differences, let’s first discuss what is a direct debit installment agreement.

This IRS payment agreement is set up in such a way that the IRS automatically takes your monthly installment payments from your bank account.

As opposed to other plans, a direct debit installment agreement doesn’t require monthly postings, eliminates the risk of misplaced payment, and helps you avoid transaction fees.

Despite its overall strengths, a direct debit installment agreement has a few downsides you need to factor in. 

For starters, this plan increases the risk of overdraft. This means that if you run out of funds in your bank account to cover your monthly payment, not only will your bank charge a hefty overdraft fee, but the IRS will also hit you with an insufficient funds fee. 

If this happens once, it’s not much of a problem. However, miss two payments and you’ll default on your IRS installment agreement. 

Another major downside is that a direct debit installment agreement is notoriously difficult to cancel. If you want to cut the agreement short at any time, the IRS may deny your request and you’ll probably have to hire a legal professional to help you resolve the situation. 

How To Set Up An Installment Agreement With The IRS

With most payment plans, you have the option of applying online. Still, our recommendation is to complete Form 9465 and mail it directly to the IRS. 

To set up a partial installment plan, you also need to attach a completed Form 433-A, together with the information on your finances and equity. 

Depending on your circumstances, the IRS may ask for additional forms and information. This can be tricky to manage on your own. Plus, when you consider how much is at stake here, you’re better off hiring a tax attorney who can help you navigate through the arduous process of negotiating with the IRS.

To apply for an installment agreement, you should also have the following information ready:

• Legal name
• Address and contact information
• Date of birth
• Social security number
• Filing status
• Balance due

Now that you’re familiar with what is a direct debit installment agreement, you may be interested in applying. Fortunately, the process isn’t as challenging as it is for other installment agreements. 

In addition to the forms and information listed above, you have to provide the IRS with your account and bank routing number, and you’re pretty much good to go.

Why Hire A Tax Attorney To Help You Set Up An Installment Agreement?

Even though a relatively competent taxpayer can realistically apply for a payment plan and reach favorable results, things are rarely smooth sailing, especially when dealing with the good old IRS. The application process is needlessly complicated for some plans, and you may not have the knowledge to figure out which option will work best in your situation. 

Otherwise, when making major tax decisions, you should always consult a qualified tax professional first.

A tax attorney, like the experts working at Law Offices of Mary E. King can assist you in managing your tax issue efficiently. 

Our law firm has been offering legal advice to Florida residents for over two decades and helped many taxpayers successfully leverage legal tools available to get back to good standing with the IRS:

Along with helping you choose the right plan, we’ll also negotiate with the IRS to provide you with the best possible outcome regarding your tax trouble. 

Schedule an appointment by calling 941-906-7585 or filling out our contact form.

Note: 

The information in this blog post is for reference only and not legal advice. As such, you should not make legal decisions based on the information in this blog post. Moreover, there is no lawyer-client relationship resulting from this blog post, nor should any such