Why is the IRS requiring me to be current on my estimated tax payments before they enter into an installment agreement?

If you’re working with a revenue officer, who is a person at the IRS who works in collection matters, generally they are going to determine  how much money you have paid in the current year before they enter into an installment agreement.

If you’re an employee and you get a W-2 and there’s tax withheld, generally they’re not going to spend a lot of time on that.

Where this really comes into play is if you’ve had a significant amount of investment income, dividends and interest or royalties, or you are self-employed and there’s no taxes being withheld.

The revenue officer knows that when you file your taxes at the end of the year, you’re likely going to owe money because you haven’t made any estimated payments.

One of the terms and conditions of having an installment agreement is you’re going to file your taxes on a timely basis and you’re going to pay your taxes on a timely basis.

If you don’t meet the terms, the IRS is going to default the installment agreement.

One of the things that the IRS does when you’re self-employed or have investment-type income, is to see if you’ve made estimated payments.

If you are getting an installment agreement in the middle of the year and you have made no estimated payments, then typically the IRS is going to determine the tax due last year, divide it in half and have you pay that amount of tax in estimated payments by June 30.

Otherwise they’re not going to enter into an installment agreement.

 

So it’s always important if you’re self-employed to make those estimated tax payments so that you can get an installment agreement if you need to, but more importantly when you file your taxes at the end of the year, you won’t owe any money or you will owe just a little bit of money that you can manage and write a check for.