When a taxpayer agrees to pay the IRS in the form of an IRS installment agreement, there are a number of options that need to be considered. Like any other payment plan over time, the method by which the money gets to the IRS can vary depending on the situation, assets, and ability to pay of the taxpayer.
To begin with, it should be pointed out that entering into any IRS installment plan is a very serious endeavor and should not be treated lightly. The IRS expects payment in full and on time every month until the debt is satisfied and they get very upset if anything upsets the flow of money. Thus, just how that money flows is of critical importance to the taxpayer. There are, essentially, three methods of setting up an IRS installment agreement. You need to look at each one and decide which will work best for you, with some input from your tax attorney.
The first possibility is a payroll deduction. This works just the way it sounds. Your employer deducts the correct amount from each paycheck and sends it directly to the IRS on a monthly basis. However, it should be pointed out that the employer is not legally required to take part in such an arrangement, so if your employer can’t or won’t agree to such an arrangement, then you have to move onto other avenues.
The second method is through a monthly direct debit electronic transfer from a taxpayer’s bank account. This method is preferred by many people as it is simple to set up, works like any other recurring bill, and takes the hassle and work out of the taxpayer’s hands. There is also less chance of missed payments as the IRS sets up the debit itself and as long as there are sufficient funds in the account, there’s almost no way to have a late or missed payment.
The third, and final method is to set up a general IRS installment agreement. In this case, the taxpayer sends a check through the mail to the IRS on a monthly basis. This is, again, just like paying any other recurring bill like phone or utility, but requires more effort on the part of the taxpayer. Generally, the taxpayer will get a bill each month from the IRS along with a pre-addressed envelope and they need to, again, pay in full and on time each and every month until the debt is satisfied.
You should also keep in mind that interest continues to accrue on the diminishing unpaid balance of their debt as well as a late payment fee. Thus, this is further reason to pay the debt off as quickly and efficiently as possible.