If you owe the IRS money and are considering a direct debit installment agreement, the experienced tax attorneys at Wiggam Law can help you evaluate the pros and cons of this method of tax bill payment as well as other approaches.
A large tax bill can be daunting. If you cannot pay it all at once, consider an installment agreement that allows you to make monthly payments and pay the balance off over time. The IRS offers a variety of ways to make your monthly payment, including direct debit.
Most state tax agencies including the Georgia Department of Revenue also allow qualifying taxpayers to set up payments on their state taxes.
What is a Direct Debit Installment Agreement?
Basically, a direct debit installment agreement is one in which your payments automatically go from your bank account to the IRS each month. Instead of having to remember to write and mail a check each month or process a monthly credit card payment, you can set up the direct debit payment plan at the time you apply for an installment agreement plan.
While you could instead choose to pay your monthly installment with a credit card, you avoid fees with a direct debit agreement. The IRS charges a fee of 1.99% of your payment for each credit card transaction. Over the terms of your installment agreement, you could end up paying a significant amount of money in credit card fees if you chose to go this route instead of setting up direct debit.
In some cases, the IRS requires monthly installment plan payments be made via direct debit from a bank account. Individuals with a tax bill greater than $25,000 must make payments via direct debit. Businesses with an outstanding bill of over $10,000 must also pay monthly through direct bank account debit.
What Are the Benefits of Direct Debit Installment Agreement?
The IRS prefers and encourages payment via direct pay. In fact, the agency offers a reduced application fee for direct debit installment agreements. If you apply online, the setup fee is $31 for a direct debit agreement compared to a $225 setup fee if you apply for an installment agreement by mail or telephone and request to pay by monthly check.
When you choose direct debit, you don’t have to worry about monthly postage, or lost or misplaced payments. If you already have an installment agreement and are writing monthly checks, you can convert it to direct debit at any time.
What Are the Negatives of Direct Debit?
You do have to be sure you have enough funds in your account at the time the IRS draws your monthly installment payment. If you don’t have sufficient funds, you could be subject to an overdraft fee from your bank or insufficient fund fees from the IRS. After the second month of insufficient funds, the IRS may move your installment agreement to default status. If that happens, the IRS will terminate your agreement and send Notice CP523 to demand payment.
How Do I Apply for a Direct Debit Installment Agreement?
You can apply for an installment agreement online or by completing and mailing Form 9465 to the IRS. However, depending on the situation, you may have to fill out some additional forms as well. To apply online, your outstanding tax bill must be $50,000 or less. You must be current with all tax filings and agree to meet all future tax obligations, including withholding or timely estimated tax payments.
To request direct debit of monthly payments, you will need to have both your bank routing number and your account number. By providing these, you agree to monthly withdrawals by the IRS.
If you owe the IRS money and are considering a direct debit installment agreement, it’s best to speak with an experienced tax attorney about all your options before finalizing any agreement. At Wiggam Law, our team of experienced tax lawyers can help you evaluate all your choices and represent you. Give us a call today at (404) 233-9800 to get started