There are only two things which are certain to happen one is death and other is taxes but the good thing with taxes is that it gives individual chances as well as notice to pay off the taxes. In the case of IRS sometimes people get an extraordinary amount of tax bill which cannot be paid in one single shot and that is where IRS installment agreement comes to the rescue. Under IRS installment agreement an individual can pay off the tax liability in fixed monthly installment for a specific period. In order to understand more about IRS installment agreement let’s look at some of the advantages and disadvantages of IRS installment agreement –
Advantages of IRS Installment Agreement
- The first and foremost advantage of this agreement is that it provides an individual with an option to pay the tax in installments rather than paying it one shot. So for example, if the tax liability of an individual has come to $24000 then instead of paying it in one year one can opt to pay it in an installment of $2000 per month for 12 months or of $1000 for 24 months along with interest and penalty on the outstanding amount.
- Since there is an installment option an individual can plan the repayment which in turn reduces the burden on individual considerably because if there was no such system then one has to pay the whole amount immediately which puts considerable pressure on the individual and he or she may have to take debt on higher interest rates in order to pay the tax amount. In simple words, individual’s budget is not disturbed due to the presence of IRS installment agreement.
- As far as tax authorities are concerned they also stand to benefit out of this system because if there was no such system than they have to initiate legal action against the non-tax paying individuals which is lengthy process and due to this system many people who could not afford to pay the tax amount can pay their taxes along with interest and penalty and hence for tax authorities it is a win- win situation.
Disadvantages of IRS Installment Agreement
- One of the disadvantages of this agreement is that an individual will end up paying more amount than original tax liability as penalties and interest keep on accruing each month until the whole amount of tax is paid in full. Hence if an individual is opting for this plan he or she has to pay the cost of opting for this plan by paying interest and penalty on accrued amount.
- Another disadvantage of this system is that since these payment have to be made for 3 to 5 years and taxes are imposed every year so as far as an individual is concerned he or she has to pay not only regular taxes but also these installments which in turn puts additional burden on the taxpayer for many years and in a way it creates a vicious cycle.
- Another small issue with this system is the presence of application fees which is $120 for normal payments, $52 for payments which are made electronically and $43 for a low-income taxpayer. Though this fee is not huge but as a taxpayer paying this fee can be annoying as along with interest and penalty one has to pay application fees and they all add up to increase the tax liability of the individual.
As one can see from the above that IRS installment agreement has both advantages as well as disadvantages and it depends on individual whether he or she wants to opt for IRS installment agreement or not after weighing its benefits and limitations.