What You Should Know About Individual Installment Agreement

The Internal Revenue Service does have options in place to help those who owe back taxes but are not able to pay in full. Setting up an installment agreement payment plan allows taxpayers to pay a set monthly amount designed to pay off their balance within three years. Setting up the payment plan is fairly simple if you owe under $10,000 and as long as you understand the rules and adhere to the conditions.

Automatic Approval for Under $10,000

Anyone who owes under $10,000 in taxes can automatically have an installment agreement approved provided certain conditions are met. Namely, the request is your first time ever for a payment plan, you have not had an existing payment plan for the previous five taxable years, and you have filed all your tax returns. Does this mean you cannot receive approval for an installment agreement if you are delinquent on taxes or have requested an installment plan previously? Actually, you may still be approved, although the possibility does exist you could be denied. Denials do come with the right to an appeal. Generally, if you cannot easily set up an installment agreement on your own, it is best to request the help of a professional tax accountant to set one up.

Requesting An Installment Agreement

A basic installment agreement could be set up over the telephone with the IRS’ customer service line. The installment agreement can also be requested by filling out a Form 9465 and submitting it in the mail. Be mindful of the fact the processing time for submitting an installment agreement via the mail could run several weeks. The form could also end up being lost. You definitely do not want to experience needless delays with the processing of an installment agreement because the institution of the agreement protects you against liens and levies.

No matter how you set up the installment agreement, a nominal fee is going to be charged. The fee is $54 with a direct debit agreement and $105 when a bill is sent monthly. Those who are able to pay off what they owe in less than four months may be better served asking for a 120 extension, which does not come with any cost.

Installment Agreements on Debt Up to $50,000

For those who owe between $10,000 and $25,000, an installment agreement is still an option. Although not guaranteed, a payment plan may be instituted without requests for any financial disclosures and set up as a streamlined agreement. For those who $50,000 or more in back taxes, processing an installment agreement request requires the submission of a financial disclosure statement. The statement goes into great detail about your assets, income, and debts to arrive at a reasonable monthly payment amount that can cover your debt within five years.

Anyone who owes between $25,000 and $50,000 will be required to make payments through a direct debit agreement. Sending a check in every month via the mail or making online credit card payments will not be an option.

As a new employer, you might find payroll or employment, taxes bewildering and not know where to start. Payroll taxes come in the form of federal, state and local taxes. If handled improperly, you can face penalties for noncompliance. The best way to understand payroll taxes is to first determine which ones apply to your employees and which ones you’re liable for.

Employee Payroll Taxes

You must withhold federal income tax, Social Security tax and Medicare tax from your employees’ paychecks. Withholding rules for those taxes are administrated by the Internal Revenue Service and the Social Security Administration. Depending on state law, you might need to withhold state and local income taxes, state disability insurance and state unemployment tax. State and local tax withholding rules are regulated by the state and local revenue agency.

Employer Payroll Taxes

Employers must pay Social Security tax, Medicare tax, and federal and state unemployment taxes. In some cases, such as in Arizona and California, employers must pay an employment training tax, and local payroll tax, such as Oregon’s transit district tax. The IRS collects federal unemployment tax and the state unemployment agency administers state unemployment tax.

Resources for Handling Employee Payroll Taxes

To understand how to withhold and submit your employees’ federal payroll taxes, plus how to pay your own share, consult IRS Circular E, the Employer’s Tax Guide, for the tax year in question. The publication tells you how to withhold federal income tax via employees’ Form W-4 and includes current rates for Social Security and Medicare taxes. It also states the penalties for incorrectly withholding and submitting payroll taxes. The state and local revenue agency website generally has the information you need to withhold and pay state and local payroll taxes.

Employees Exempt from Payroll Taxes

If an employee meets the criteria for federal income tax exemption, do not withhold federal income tax from her paychecks. As of 2014, an employee is exempt if she was entitled to all her federal income tax withheld in the prior year, and if she anticipates getting a full refund of her federal income tax withheld in the current year. To claim the exemption, she would need to complete and submit a W-4 form to you. Specific students working for an educational institution that they also attend and certain nonresident aliens are exempt from Social Security and Medicare taxes. The state and local revenue agency determine state and local payroll tax exemptions for employees.

Employers Exempt from Payroll Taxes

Though most employers must pay payroll taxes, a few are exempt. Churches and nonprofit, charitable, religious and political organizations are exempt if they meet the respective IRS requirements. For instance, churches and religious organizations must be operated and organized strictly for religious or other charitable purposes, net earnings cannot be for the benefit of any shareholder or private individual, and the organization cannot interfere in political campaigns or attempt to influence legislation. The state and local government generally have their own rules that determine which employers are exempt from state and local payroll taxes.

Additional Payroll Tax Requirements

Your payroll tax obligations do not stop with withholding and paying taxes. Most employers must also periodically file forms with the IRS and applicable state and local government to report federal, state and local tax liabilities. Employers must also file annual W-2s for their employees with the IRS, Social Security Administration, and applicable state and local agencies. By consulting these agencies, you can understand your W-2 and payroll tax requirements.