A couple of years ago we wrote a post recommending that, if you owe money to either the IRS or the state, that you call them and make payment arrangements with them. They’re pretty easy to work with in setting up the arrangements, and you can also do this online. However, there are some caveats you should know before you start the process.

The first is that you don’t want to wait until the last minute to try to reach them on the phone. That’s because you’re not going to be the only person trying to reach them, which means you will either have a very long wait or, believe it or not, you won’t even get through.

If the IRS determines your wait time might be longer than an hour, they’ll actually tell you to call them later and hang up on you; how rude! If you keep trying to call them within that time period you can bet you’re going to keep being rejected. You could end up calling for many days before you get through.

Truthfully, the best time to call them is the middle of the afternoon, after 3PM; at least you’ll probably get on the waiting list, which will still be long. Most people are trying to get the IRS on the phone first thing in the morning, thinking they’ll be able to beat everyone else to the punch; you can imagine the numbers of people clogging up the lines.

So far, we haven’t heard of anyone calling the state and having them hang up on you, but you could easily be waiting a long time to talk to someone.

The second thing to know is that you have to set an amount to pay off your claim in a certain amount of time. It’s based on how much you owe and who you owe.

The IRS will work with you if you owe a very high amount. They’ll often let you set a rate where you’ll have your balance paid off within 20 years if it’s high. Otherwise, they’d like you to have it paid off within 5 years.

The states are a different animal. Depending on which state you’re in, they’ll want the balance paid off any time between two and four years, which means you’ll have to find a way to fit your requested monthly payment into that slot. Luckily, state taxes are rarely all that high for most people and businesses, so it’s a lot easier on you to address them.

The third thing to know is that if you have a payment arrangement in one year and you end up owing the second year and can’t pay, you can have your agreement altered to include both years. However, you only get to to this once; if you have a third year they’ll consider you in default and you’ll have bigger problems to deal with.

If you’re the state, the rules differ. Since we’re based in New York we’ll talk about our rule. If you need a second year, the first thing the state does is reports to the credit bureaus that you’re in default for the first year. Then they’ll allow you to add the new amount to your previous balance. However, the deed is done because that’s a bad thing to have on your credit record until it’s paid off.

You’ll have a hard time getting any credit during the period you have an open balance with them. Once it’s paid off, when you get the letter saying it’s been taken care of you can send that to each credit reporting agency and ask them to remove it; however, there’s no guarantee that they will, though most people report that they usually do.

As we recommended two years ago, it’s always better to be proactive in these instances. These agencies are willing to work with you; it’s their job.