A Direct Debit Installment Agreement (DDIA) is an arrangement between a taxpayer and the IRS for monthly installment agreement payments to be made directly from the taxpayer’s bank account. Before you set up DDIA payments and authorize direct debit, there are a few things to know about them and how they work.
What Is an IRS Direct Debit Installment Agreement?
There are often situations where taxpayers owe the IRS a significant amount of back taxes but cannot pay that full amount all at once. In this situation, you may ask the IRS to approve an installment agreement in which you make affordable monthly payments over time until your tax debt is repaid.
If the IRS agrees to this, you can then choose how you want to pay. Often, direct debit is beneficial. In some situations, the IRS will require that installment payments be made this way. It helps to minimize the risk of nonpayment and may be a requirement for approving an installment agreement.
Who Qualifies for DDIA?
The first step is to receive approval for an installment agreement from the IRS for the back taxes you owe. The IRS has the right to refuse this and may do so if it believes you have the financial means to repay your unpaid taxes in full. However, if the IRS believes you are making a request in good faith to repay what you owe over time, they will work with you to create a monthly payment plan.
You may be eligible to apply for an IRS payment plan if you have filed your tax returns and owe less than $50,000 in total taxes, plus interest and penalties. This allows you to request a long-term payment plan. A short-term plan may be available if you owe under $100,000 in combined taxes, interest, and penalties.
If you are approved for a payment plan to settle your tax debt, you will be eligible for DDIA as long as you have a valid bank account to set up the direct debit payment.
What Are the Advantages of Direct Debit Installment Agreements?
DDIA payment plans offer a number of advantages:
- You avoid making late payments on your tax debt since they are made automatically for you.
- There is no need to pay a fee for a credit card transaction (which the IRS typically charges) or have to worry about writing a check for the amount you owe each month.
- You may be able to request that the IRS withdraw any liens on your property after three months of on-time direct debit payments.
- It may be the only way for the IRS to approve your monthly tax debt repayment plan, especially if you have a poor payment history.
How Often Does the IRS Withdraw DDIA Payments From Your Bank Account?
The IRS will withdraw payment for your Direct Debit Installment Agreement once a month. You may be able to log into your IRS account to make additional payments over and above your monthly installment amount if you need to do so.
What Happens If Your Bank Account Doesn’t Have Enough Money for Your DDIA Payment?
Ultimately this is dependent on what your bank does. In some situations, your bank will refuse to process the direct debit installment payment, which could lead to additional IRS interest charges on the unpaid balance. When you have insufficient funds in your account, the IRS sends a CP166 notice to let you know they couldn’t process your payment.
If your bank processes the monthly DDIA payment even though you don’t have enough funds, they may charge you an overdraft fee.
When you have ongoing IRS direct debit payment issues, you may default on your installment agreement. Defaulting could mean what you owe the IRS is due in full immediately. The IRS may be able to work with you if you cannot make your DDIA payment. Don’t ignore your monthly installment payment and contact the IRS for additional help as well.
Can You Request a Notice of Federal Tax Lien Withdrawal When You Have a Direct Debit Installment Agreement?
As a taxpayer with a lien on your property or other assets due to late tax payments, it may be possible to remove this lien if you set up a DDIA. If you enter into this agreement with the IRS and then make payments on time for three months, you can request that the lien be removed, which can help you make other decisions with your property as needed.
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