Everyone needs a fresh start from time to time. The IRS to the rescue!
The IRS has announced a major expansion of its initiative to help struggling taxpayers by providing new penalty relief to the unemployed and making installment agreements available to more taxpayers. Under the new provisions, certain taxpayers who have been unemployed for 30 days or longer and certain self-employed individuals will be able to avoid failure-to-pay penalties. In addition, the IRS is doubling the dollar threshold for taxpayers eligible for installment agreements to help more people qualify for the program.
Penalty Relief
To assist those most in need, the IRS is providing a six-month grace period on failure-to-pay penalties to certain wage earners and self-employed individuals. Penalty relief will be available to two categories of taxpayers: (1) wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to the April 17 deadline for filing a federal tax return this year, and (2) self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011 due to the economy. This penalty relief is limited to taxpayers whose income does not exceed $100,000 (single or head of household) or $200,000 (married filing jointly) and whose calendar year 2011 balance due does not exceed $50,000. Eligible taxpayers requesting an extension of time to pay will get relief from the failure to pay penalty for tax year 2011 only if the tax, interest and any other penalties are fully paid by October 15, 2012. Taxpayers meeting the eligibility criteria will need to complete Form 1127A to request relief. Failure-to-file penalties applied to unpaid taxes remain in effect and are generally 5 percent per month, with a 25 percent cap.
Installment Agreements
The IRS has also announced that the threshold for obtaining an installment agreement without having to supply the IRS with a financial statement has been raised from $25,000 to $50,000. Taxpayers who owe up to $50,000 in back taxes will now be able to enter into a streamlined agreement with the IRS that stretches the payment out over a series of months or years. The maximum term for streamlined installment agreements has also been raised to 72 months from the current 60-month maximum. Taxpayers seeking installment agreements exceeding $50,000 will still need to supply the IRS with a Collection Information Statement (Form 433-A or Form 433-F). In order to qualify for the new expanded streamlined installment agreement, a taxpayer must agree to monthly direct debit payments. Taxpayers can set up an installment agreement with the IRS by going to On-line Payment Agreement (OPA) page and following the instructions.
