Can You Have Two Payment Plans with the IRS?

An individual taxpayer cannot have two payment plans with the IRS. Theoretically, however, an individual may have an IRS installment agreement on their individual income taxes and a corporation they own (or partially own) may also have its own installment agreement. 

Usually, this question comes up when someone has an existing installment agreement, and they want to add a new tax liability to their agreement. The IRS doesn’t always approve these types of requests, but it can be possible. Here’s what you need to know. 

Can You Combine Two Years of Taxes?

The terms of an IRS installment agreement say that you may go into default if you incur an additional tax liability. That means that if you file a tax return and owe money, the IRS can terminate your existing installment agreement. 

However, if you get in front of the situation and contact the agency as soon as possible, you may be able to add your new balance to your existing installment agreements. 

Installment Agreement Rules on New Tax Liabilities

When you set up an IRS installment agreement, you usually have to sign Form 433-D. This form outlines the terms of the agreement. It outlines strict rules about missed payments and not paying new tax liabilities. 

The rules state the following, “We can terminate your installment agreement if: You do not make monthly installment payments as agreed. You do not pay any other federal tax debt when due. You do not provide financial information when requested.”

This rule gives the IRS the power to terminate your agreement. However, it doesn’t necessarily mean that the agency will terminate your agreement. The IRS has a history of adding new tax liabilities to existing installment agreements. In particular, during the COVID pandemic, in 2020, the IRS made an announcement that the agency was fine with this practice. 

How to Modify an Existing Installment Agreement

If you set up your installment agreement online, you can modify it through the online application. However, you can only modify payment amounts or make other small changes. You usually cannot add a new balance to your payment plan online. 

To make this type of change, contact the IRS directly, or ask a tax attorney to help you. 

Changing Types of IRS Installment Agreements

In some cases, you may need to change your installment agreement if you add a new tax liability to it. For instance, you can only have a streamlined installment agreement if you owe less than $50,000. If your new tax liability brings you over this threshold, the IRS may require you to file a financial disclosure. 

Generally, the IRS uses Form 433-F for this purpose. Even if you don’t owe over that threshold, the IRS may still require this form before adding a new tax liability to your existing payment plan. 

This form requests information about your income and expenses. The IRS uses this information to determine if you can afford to pay in full or make larger monthly payments. 

A guaranteed installment agreement is for people who owe less than $10,000 and can pay off the balance in three years or less. If your new tax liability takes you over this limit or causes you to need more time to pay, you may need to move away from this type of installment agreement and set up a different one. 

What If You Cannot Afford a Payment Plan?

In some cases, you may not be able to afford your monthly payments if you add a new tax liability to your existing payment plan. If that happens, consider the following options: 

• Offer in compromise — The IRS may be willing to reduce your bill if you can pay off your tax liability in a lump sum and you offer the most you can afford to pay.
• Partial payment installment agreement — With this type of payment plan, the IRS lets you make monthly payments until the collection statute expires. Then, the IRS waives the rest of the bill. 
• Currently not collectible status — If you cannot afford to pay anything, the IRS may agree to stop collection actions against you. However, if you continue to incur new tax liabilities, you will not qualify for CNC status. 

A tax resolution specialist can help you identify the best option for your situation. If relevant, you should also ask for penalty abatement. This can help you reduce your overall tax bill, regardless of which resolution option you select. 

How to Avoid Incurring an Additional Tax Liability 

To avoid incurring an additional tax liability, keep these tips in mind:

• Pay your estimated taxes throughout the year.
• Make changes to your budget if you regularly struggle to pay estimated taxes.
• Work with a tax planner to reduce your tax liability as much as possible. 
• If you have an employer, fill out an accurate W4 to ensure that they withhold the optimal amount. 

The W4 has a section that allows you to increase your withholding if you have a second job, a business, or a spouse that works. If you have a business and a job, you may want to adjust the withholding at your job to cover some or all of the income tax payments from your business income. 

Can You Have Two State Payment Plans?

You can have multiple payment plans for different types of state taxes. For instance, if you get behind on your state income taxes and the sales tax for your business, you may be able to set up separate payment plans for each of those taxes. 

However, the rules vary drastically from state to state. Most states have much less generous payment plan terms than the IRS. If you have a payment plan with your state revenue agency and you incur an additional tax liability, you will need to contact the revenue agency to ask about specifics. 

Get Help With Unpaid IRS Taxes

Unable to pay your tax bill? Already have an installment agreement? Want to talk about your options? Then, contact us today. At The W Tax Group, we help clients with a wide range of IRS and state tax problems. Regardless of the issue you’re facing, we can help you assess the situation and decide the best steps forward.

Lead Tax Attorney at The W Tax Group

Stephen A Weisberg