For some people, tax season can’t come fast enough. They overpaid on their taxes throughout the year and are due for a refund. Strapped for cash after Christmas, they head down to the H&R Block pop-up at their local Wal-Mart and get an advance on their refund. But at least 8.2 million Americans look upon tax season with dread. Collectively, they owe over $83 billion in back taxes, interest, and late fees, which averages to over $10,000 a person. With tax season in full swing January 31, when employers have to send out W-2s, there’s a lot of talk about the IRS Fresh Start.
But what is it? Is it really a fresh start? And do you qualify? At Geaux Tax Resolution, our licensed professionals are here to help you make heads or tails of all the complex tax terminology being thrown around. Here’s what you need to know about the IRS Fresh Start.
What Is the IRS Fresh Start Program?
The IRS Fresh Start program is an IRS “program” designed to make it easier for individuals who owe back taxes to pay off their liability. The goal of this program is to allow people to pay back the IRS without excess fees or liens placed on vehicles or homes. While Fresh Start is known as a program, it is not actually a program. Rather, it is a series of changes to the Internal Revenue Code to ease the tax burden of qualifying individuals.
Do I Qualify for the Fresh Start Program?
As of 2020, there are three primary factors that determine if you qualify for this program or not. First, self-employed individuals must prove that their net income has dropped by at least 25%. Individuals filing Single, Married Filing Single, or Head of Household may have a gross income of no more than $100,000 per year. Those filing Married Filing Jointly must make no more than $200,000 annually to qualify for this program. If you pass the first two qualification tests, you must owe fewer than $50,000 in overall taxes to qualify.
Is the Program Really a Fresh Start?
For millions of qualifying Americans, the Fresh Start program really is a fresh start. You are still liable for your back taxes. But when you don’t have to worry about a quarter of your wages being garnished or having money taken straight out of your bank account, you can start to breathe a little easier in the morning. When you don’t have to check your bank balances or pay stubs compulsively, you have more mental bandwidth to enjoy life with. Even though your liability is not erased, qualifying for the Fresh Start program can leave you feeling like you and your family have been thrown a lifeline.
In some cases, this program really does offer a fresh start. If you qualify for an Offer in Compromise or partial payment installment agreement, part of your slate is wiped clean. When you’re struggling to pay your mortgage and car note, the lifeline of owing less in taxes and fees is indescribable.
What Fresh Start Repayment Options Are Available?
1. Extended Installment Agreement
The IRS Fresh Start installment plan is one of only two payment plans offered by the IRS for tax debt. Its purpose is to minimize penalties and fees for delinquent tax bills. Those who don’t qualify for the program must pay all sorts of fees associated with their late payment, including set-up fees, penalties, and late fees.
If you can pay off your debt in 120 days, set-up fees and other fees can be waived. If you need over 120 days to pay off your delinquent tax debt, you will need to agree to monthly direct debits to avoid certain fees. If you choose to make your monthly payments manually, you are responsible for further fees should you fail to pay on time.
Streamlined Installment Agreement
Of all the Fresh Start installment agreement options available, the streamlined installment agreement is the most common. Most taxpayers owing no more than $25,000 qualify for this streamlined application. With this type of agreement, no collection information statement is required. The preferred payment methods are direct debit or payroll deduction but are not required.
If you opt for payroll deduction or direct debit, you may qualify for this type of agreement even if your assessed balance is up to $50,000. Alternatively, you can qualify for a streamlined installment agreement if you owe between $25,001 and $50,000 when you file a Notice of Federal Tax Lien.
Partial Pay Installment Agreement
If you can’t afford to pay even a partial balance at once, you can apply for a partial pay installment agreement. This serves two purposes. First, your balance due is lessened to a more affordable amount. Second, you can cash-flow your repayment. However, there are tests you have to pass to qualify for such an installment plan.
First, you must owe at least $10,000, including penalties, fees, and interest. You must have never had an accepted Offer in Compromise, and you may not be in bankruptcy. Depending on how much you owe, you may have between six and seven years to pay off your delinquent tax liability. Moreover, the IRS can only evaluate your income, expenses, and assets every two years. This means if you are gifted a home, your expenses become reduced or your assessable income increases drastically at the start of the third year, you can continue paying your agreed-upon amount until the fifth year of your plan.
Stair-Step Installment Agreement
The stair-step installment agreement is not as common as the streamlined installment agreement. But, for people who know about it, it is extremely popular. Under this installment agreement option, you’ll pay a small monthly sum for the first 12 months. After that, you will make a slightly larger payment for the final four years of your plan. This option is ideal if the PMI on your mortgage is about to be dropped, you’re nearly done paying off your high-interest student loans or car note, your child support payments will end in a few years, or you’re poised to get a raise shortly.
2. Offer in Compromise
If a tax professional can prove that you can’t pay your tax bill in full, you may qualify for a Fresh Start Offer in Compromise. To apply for this program, you will need the help of a licensed tax professional. It is inordinately tricky to negotiate with the IRS and receive a bill for less than what you owe. If paying the full amount of taxes owed will create an insurmountable financial hardship, we will file your application and negotiate on your behalf, making the process stress-free. Just be aware that you may need to agree to direct withdrawals from your checking account until the agreed-upon amount is paid off.
Contact Geaux Tax Resolution Today
Taxes are complicated, and it takes a very special person to enjoy filing taxes. But when you owe back taxes, they’re more than just complicated. They’re often the cause of extreme anxiety. At Geaux Tax Resolution, our mission is to help you save the most money on your delinquent taxes while ensuring you’re not ensnared by scams or tax solutions that are less than ideal for your needs. To learn more about the IRS Fresh Start program, schedule your complimentary consultation with one of our tax experts today.