If the best solution to your tax situation is a payment plan, the IRS does offer a flexible payment plan to some within the first year. This type of payment plan is called a tiered payment plan, and like it sounds, there are two tiers: the first year and the remaining years. But with this structure, it could allow more options to the taxpayer in starting things out.
What is it?
As introduced, the tiered payment plan modifies the first year compared to the remaining years. The first year of the plan the monthly payments can be lower, and then those payments would increase in the second and remaining years. This is for people owing less than $25k to the IRS and on a 72 month timeframe.
Why could this be a good idea for you?
This could be a good idea for some for many reasons. One reason is that it creates a lower threshold for entering a payment solution. It would allow an entire year to plan and adjust your budget to afford the higher upcoming payments. The year could also provide an opportunity to pay off other debts to provide more disposable income, or if there is a future increase in income, it could buy time to get there. Lastly, collections would be ceased and future collections prevented by entering this, which might be an immediate concern and a lower bar to get there.
Not Your First Choice
As mentioned in other articles, a payment plan is not your first choice in resolving tax debt. It should be thought of as a deduced resolution where other options didn’t match your circumstances. If a payment plan was there remaining, the consequences of a tiered plan is a future larger payment, as opposed to a fixed amount. Being realistic with your abilities in the future, you have to afford that larger amount, even if the first year is what you “want.”
With all things, professional advice is often warranted in providing the right guidance on what resolution to enter and to help with your decision making. Even after a decision is made, in establishing this type of plan, a professional can be helpful. Give us a call 800-822-4122 to learn your options.