Are you struggling to pay your taxes to the IRS in full? If so, you may be eligible for an installment agreement, which allows you to make monthly payments over time. However, it`s important to understand the interest rate associated with these agreements.
The interest rate for IRS installment agreements is determined by federal law and is adjusted quarterly. Currently, the interest rate is 3% per year compounded daily. This means that interest accrues on a daily basis and is added to your outstanding balance each month.
It`s important to note that the interest rate for installment agreements is significantly lower than the penalty rate for failing to pay taxes on time, which is typically 0.5-1% per month. As such, if you`re unable to pay your taxes in full, entering into an installment agreement can be a smart financial decision to avoid accruing additional penalties.
To apply for an installment agreement, you must owe less than $50,000 in taxes, interest, and penalties. You can apply online through the IRS website or by filling out Form 9465 and mailing it in. If your application is approved, you`ll be required to make monthly payments until your balance is paid in full, including any accrued interest.
It`s important to note that the IRS may still file a tax lien against you while you`re making payments on an installment agreement. However, if you make all payments on time and pay your balance in full, the lien will be released.
In conclusion, if you`re unable to pay your taxes in full to the IRS, an installment agreement can be a helpful solution. The interest rate is relatively low and entering into an agreement can help you avoid additional penalties. However, it`s important to stay current on your payments and pay your balance in full to avoid a tax lien.