What an IRS payment plan does
An IRS payment plan lets you pay your tax debt in monthly installments instead of all at once. The IRS calls this an installment agreement. When you set one up, you agree to a monthly payment amount and a important date to finish paying. The IRS stops collection action — like wage garnishment or bank levies — while you are making payments on time.
The catch is that you still owe interest and penalties on top of the original tax debt. Interest accrues daily at a rate set by the IRS each quarter. Penalties for late payment and failure to file also continue to grow until the debt is paid in full. A payment plan does not reduce what you owe; it just spreads the cost over time.
You can set up a payment plan whether you owe $25 or $25,000. The IRS offers different types depending on how much you owe and your circumstances.
Key Takeaways
- An IRS payment plan lets you pay back taxes in monthly installments, and the IRS pauses collection action while you pay on time.
- Interest and penalties continue to accrue on your debt, so the longer your plan lasts, the more you will owe in total.
- Short-term payment plans (120 days or less) have no setup fee; long-term plans cost between $31 and $225 depending on how you set them up.
- You can set up a plan online through IRS.gov, by phone at 1-800-829-1040, or by mailing Form 9465 to the IRS address on your notice.
- If you miss a payment or fall behind on taxes again, the IRS can end your plan and resume collection action.
The three types of IRS payment plans
Short-term payment plans cover debts you can pay off in 120 days or less. There is no setup fee. You straightforward contact the IRS and agree to a monthly payment. This is the fastest and cheapest option if you can pay the debt within four months.
Long-term installment agreements are for debts that take longer than 120 days to pay. These come in two versions. A may provide installment agreement is available if you owe $15,000 or less and can pay within 72 months. The IRS approves these without reviewing your finances. A standard installment agreement applies to larger debts or longer timeframes. The IRS reviews your income and expenses to set a payment amount you can actually afford.
There is also a streamlined installment agreement, which sits between the two. You use this if you owe between $15,000 and $50,000 and can pay within 84 months. The IRS does not review your finances as closely, and the setup fee is lower than a standard agreement.
Setup fees and how much they cost
Short-term plans have no setup fee. Long-term plans do, and the amount depends on how you set up the agreement.
If you set up online through IRS.gov or by phone, the fee is $31 for a may provide agreement or $225 for a standard or streamlined agreement. If you mail in Form 9465, the fee is $225 for any long-term plan. The IRS adds the fee to your debt, so you pay it as part of your monthly installment.
Low-income taxpayers may pay a reduced fee of $31 regardless of the plan type. The IRS considers you low-income if your income is at or below 250 percent of the federal poverty line for your family size.
How to set up a payment plan
You need a notice from the IRS before you can set up a plan. This is usually a bill or a notice of intent to levy. If you have not received a notice, contact the IRS first to confirm what you owe.
Once you have a notice, you have three ways to set up a plan. Online through IRS.gov is the fastest. Go to the IRS Online Payment Agreement tool, enter your Social Security number or employer identification number, and follow the steps. You will see your debt amount, choose a monthly payment, and get approval in minutes. This works for debts up to $50,000.
By phone, call the IRS at 1-800-829-1040. Have your notice and financial information ready. A representative will discuss your situation and set up the plan. This takes 20 to 30 minutes.
By mail, fill out Form 9465 (Installment Agreement Request) and mail it to the address shown on your notice. Include a check or money order for the setup fee if you are setting up a long-term plan. The IRS will respond in 30 to 60 days. This is the slowest method, but it works if you do not have internet access or prefer a paper trail.
What happens after you set up a plan
Once your plan is approved, the IRS sends you a notice confirming the monthly payment amount, due date, and the month you will finish paying. Your payment is due on the same date each month. You can pay by check, money order, electronic funds withdrawal (automatic deduction from your bank account), credit or debit card, or through the IRS payment portal.
Electronic funds withdrawal is the cheapest option because there is no payment processing fee. If you pay by card or through a third-party payment processor, you will be charged a fee on top of your payment.
While you are on a payment plan, you must file your tax return on time each year and pay any new taxes due. If you do not, the IRS can end your plan and resume collection action. You also cannot fall more than one payment behind. If you miss a payment, contact the IRS right away to catch up or modify your plan.
When a payment plan might not work for you
A payment plan is not the right choice if you cannot afford the monthly payment the IRS sets. If your finances are very tight, you may be able to request a lower payment or a longer timeframe, but the IRS will only agree if you can show you cannot pay more.
If you owe a very large amount and spreading it over years means paying thousands in interest and penalties, you might explore other options. The IRS offers an Offer in Compromise, which lets you settle for less than you owe if you can show you cannot pay the full amount. This is harder to get approved for and takes longer, but it can save money if your debt is very large.
You also cannot set up a payment plan if you are not current on filing your tax returns. You must file any missing returns before the IRS will work with you on a payment plan.
What to do if you cannot make a payment
If you miss a payment or know you cannot pay next month, contact the IRS when ready. Do not wait for a notice. Call 1-800-829-1040 or log into your IRS account online to request a modification.
The IRS can lower your monthly payment, extend your plan, or put your plan on temporary hold if you are facing a hardship. You will need to explain your situation — job loss, medical emergency, or other unexpected expense — and provide recent income information. The IRS will work with you if you reach out before you fall behind.
Frequently Asked Questions
Can I set up a payment plan if I owe the IRS and also owe state taxes?
An IRS payment plan only covers federal taxes. You will need to contact your state tax agency separately to set up a plan for state taxes. Some states offer payment plans similar to the IRS; others have different rules. Start with your state's department of revenue website.
What if I pay off my plan early?
You can pay off an IRS payment plan at any time without penalty. Interest and penalties stop accruing once the debt is paid in full. Paying early saves you money because you pay less interest overall.
Does a payment plan hurt my credit score?
The IRS does not report to credit bureaus, so a payment plan itself does not appear on your credit report. However, if the IRS filed a tax lien before you set up the plan, that lien may appear on your credit report and affect your score. Once you pay off the debt, you can request that the lien be removed.
Can I change my monthly payment amount after the plan starts?
Yes. If your income changes or your circumstances shift, you can request a modification. Contact the IRS by phone or through your online account. You will need to provide updated financial information, and the IRS will recalculate your payment based on what you can afford.
What happens if I get a refund while I am on a payment plan?
The IRS will explore your refund to your payment plan debt automatically. This reduces what you owe and can shorten your plan. You cannot choose to receive the refund instead; the IRS uses it to pay down the debt first.