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I’m Tired of This IRS Installment Agreement

This article was written by in Taxes. 7 comments.

Now that I’ve finally gotten my credit card balances down to zero, I’ve been trying to figure out the best use of the extra money I’ll have in my checking account. Options include: make extra car payments, put it in a savings account, put it in a mutual fund, make extra house payments, make impulse purchases, etc. In looking over the spreadsheets for our household finances, I saw one monthly bill that nags at me the most: $167 a month to the IRS.

Throughout 2007, I made a big mistake with my employer’s W-4 form, by answering it without reading the small print about having a working spouse. We were hit with a ~$6,000 tax bill the next year, and we didn’t have the cash to pay it. Our best option was to set up an installment plan with the IRS, to whom we’ve been paying $167 a month between then and now.

My wife and I have a perfectly logical, though surprisingly unusual, bill payment system which relies primarily on the difference between our salaries. We supply funds to our joint checking account according to what each of us can afford, instead of, for example, making 50/50 contributions, or assigning different utilities to each person. We’ve both been contributing to this annoying monthly IRS bill just like all the other monthly bills, but I feel more than 50% responsible for the fact that it got so messed up in the first place.

So I’ve decided to apply the leftover money in my account each month to the IRS bill from many years ago. Coincidentally, we just got a statement ending July 2010, and we still owe about $2,700. Depending on the month, I should be able to pay between $500 and $900 a month, so it should be taken care of quickly. Knowing what I do about how difficult it was to start paying them in the first place, I only hope they make it easy to pay them more than $167 a month.

Published or updated August 27, 2010.

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About the author

Smithee formerly lived primarily on credit cards and the good will of his friends. He is a newbie to personal finance but quickly learning from his past mistakes. You can follow him on Twitter, where his user name is @SmitheeConsumer. View all articles by .

{ 7 comments… read them below or add one }

avatar 1 Anonymous

My advice is to wait until you have the full amount and then send it all to the IRS at once. That way, if an emergency hits in that time frame (true emergency, like car breakdown) you have the cash.


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avatar 2 Anonymous

This is a terrible idea. The interest continues to build, putting deeper and deeper into debt. The IRS may put a judgement on your and a levy on your bank account.

The more you communicate with them the better. It shows good faith that your aren’t running from your responsibility. So, call them and set up a payment plan asap and get it out of the way.

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avatar 3 Anonymous

I agree with Erica, with one extra thought. What’s the interest rate on this IRS debt? If it’s lower than what you’ll get in a TIPS fund or another acceptable-risk-for-you investment account, pay the minimum to the IRS.

With low-risk investments returning 4-5% (even some savings accounts are at 3-4% right now, so zero risk), there’s no way I’ll ever pay more than the bare minimum to my 1-2% interest student loan.

It looks like you want to pay extra to get the psychological relief of knowing that bill is gone.

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avatar 4 Anonymous

IRS debt always carries a higher interest rate than TIPS securities, so the debt should be paid off first.

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avatar 5 Anonymous

The IRS always comes first, before ANY other bills.

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avatar 6 Anonymous

If you don’t already have an emergency fund set up, I agree with Erica!

I know it will be a large relief once that debt is paid!

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avatar 7 Anonymous

Smithee, dear it is very nice of you that you have shared this in public. There might be many people who are stuck up in the same situation. Reading this article may be very helpful for them.

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