If you are struggling to pay your taxes, the IRS offers a solution called an installment agreement. This is an agreement that allows you to pay off your tax debt over time in manageable monthly payments. However, if you miss a payment or pay late, there can be some serious consequences.
Interest and Penalties
When you sign up for an installment agreement with the IRS, you agree to make monthly payments on time. If you miss a payment, the IRS will charge interest and penalties on your unpaid balance. The interest rate is currently 0.5% per month, which may not seem like a lot, but it can add up quickly if you have a large balance.
In addition to interest, the IRS may also assess a failure-to-pay penalty of 0.5% per month, up to a maximum of 25% of your unpaid balance. This penalty is charged every month your payment is late. So, if you miss a single payment, you could end up paying both interest and penalties on your unpaid balance.
Default
If you miss multiple payments or fail to pay the minimum amount required by your installment agreement, you could default on your agreement. When this happens, the IRS can take collection action against you, including:
– Garnishing your wages
– Seizing your bank account
– Placing a lien on your property
– Seizing your property
Defaulting on an installment agreement is a serious matter, and can have long-term consequences for your credit score and financial future.
Reinstatement
If you do default on your installment agreement, you may be able to reinstate it by making a payment to bring your account current. However, the IRS may charge additional fees for reinstatement, and you may be required to provide financial information to prove that you can make future payments on time.
In some cases, you may be able to negotiate a new installment agreement with the IRS or even settle your debt for less than the full amount owed. However, these options can be difficult to obtain and may require the help of a tax professional.
Conclusion
Paying your IRS installment agreement late can have serious consequences, including interest, penalties, and even default. To avoid these consequences, it`s important to make your payments on time and in full. If you`re struggling to make your payments, don`t ignore the problem, as it will only get worse. Instead, contact the IRS to discuss your options and see if you can work out a solution that works for you.