If you owe money to the Internal Revenue Service (IRS) and cannot afford to pay it off all at once, you may be eligible for an installment agreement. This type of agreement allows you to pay off your debt in manageable monthly payments over time. However, what if you come into money and want to pay it off early? Here`s what you need to know about paying off an IRS installment agreement early.

First, it`s important to understand that the IRS charges interest and penalties on any unpaid tax debt. When you enter into an installment agreement, you will continue to accrue interest and penalties until your debt is paid in full. Therefore, the longer it takes you to pay off your debt, the more you will owe in interest and penalties.

If you come into extra money and want to pay off your IRS installment agreement early, it can save you money in the long run. By paying off your debt early, you will reduce the amount of interest and penalties that accrue over time. Additionally, paying off your debt early can help improve your credit score, as your debt-to-income ratio will decrease.

To pay off your IRS installment agreement early, you can make a lump sum payment online or mail a check to the IRS. When making a lump sum payment, you must indicate that you want the payment to be applied to your principal balance. By doing so, you ensure that the payment is applied directly to your debt and not towards future monthly payments.

It`s important to note that you should not simply stop making your monthly payments if you want to pay off your debt early. If you miss a monthly payment, the IRS may consider your installment agreement to be in default, and you may face additional penalties and interest charges. Instead, contact the IRS directly to discuss your options for paying off your debt early.

In conclusion, paying off your IRS installment agreement early can save you money in the long run by reducing the amount of interest and penalties that accrue over time. To do so, make a lump sum payment and ensure that it is applied directly to your principal balance. Additionally, it`s important to continue making your monthly payments until your debt is paid in full.