Installment Agreement: An Installment Agreement is a payment plan that allows a taxpayer to pay off their tax debt over a specified period of time in regular, scheduled payments rather than in a lump sum. This arrangement is typically established with the IRS or state tax authorities when a taxpayer is unable to pay their full tax liability immediately.
Under an Installment Agreement, the taxpayer agrees to pay a set amount each month until the total tax debt, including interest and penalties, is fully satisfied. The terms of the agreement may vary based on the amount owed and the taxpayer’s financial situation. It is important to stay current with the payments to avoid defaulting on the agreement, which could lead to collection actions by the tax authority.
For example, if a taxpayer owes $10,000 in taxes and cannot pay it all at once, they might negotiate an Installment Agreement to pay $300 per month for 36 months, leading to the complete settlement of the debt.
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