Yes, you can set up a payment plan with the IRS if you owe taxes
The IRS allows you to pay what you owe in monthly installments instead of one lump sum. This is called an installment agreement. You set it up directly with the IRS, and once approved, you make regular payments until your debt is paid off. The IRS offers several types of plans depending on how much you owe and your situation.
Setting up a plan stops the IRS from taking more aggressive collection actions like wage garnishment or bank levies while you are making payments on time. The process itself is straightforward — you can start online, by phone, or by mail — but there are fees involved and interest continues to accrue on what you owe.
Key Takeaways
- The IRS offers short-term plans (120 days or less) at no setup fee and long-term installment agreements with setup fees ranging from $31 to $225 depending on how you set it up.
- You can set up a plan online through IRS.gov, by phone at 1-800-829-1040, or by mail using Form 9465, and the fastest route is usually the online system.
- Interest and penalties continue to accrue on your unpaid balance, so the longer your plan runs, the more you will owe in total.
- Missing a payment on your plan can result in the agreement being cancelled and the IRS resuming collection actions.
- If you owe less than $50,000, you have more plan options and lower fees than if you owe more.
Types of payment plans the IRS offers
The short-term payment plan is for people who owe $100,000 or less and can pay within 120 days. There is no setup fee, and you do not need to submit detailed financial information. You straightforward tell the IRS when you can pay and they set it up. This plan is useful if you know you will have the money soon but need a few months to gather it.
The long-term installment agreement is for people who need more than 120 days to pay. This is what most people think of when they hear "payment plan." You can set one up if you owe up to $50,000 in combined taxes, penalties, and interest. The IRS charges a setup fee (between $31 and $225, depending on how you set it up) and you make monthly payments until the debt is cleared.
If you owe more than $50,000, the IRS still allows installment agreements, but the process is more involved. You will need to provide detailed financial information and the IRS may require a larger monthly payment or a different arrangement. These are called high-balance installment agreements and are less common for individual taxpayers.
How to set up a plan online
The fastest way to set up a plan is through the IRS website at IRS.gov. Go to the "Online Payment Agreement" tool. You will need your Social Security number, date of birth, and the tax year(s) you owe for. The system will ask you how much you can pay each month and when you want your payment due date to be.
The online system works only if you owe $50,000 or less and are setting up a long-term plan. It does not work for short-term plans or high-balance situations. Once you submit, you get a confirmation number when ready, and your plan is usually active within 24 hours. You will receive a letter in the mail confirming the details.
The setup fee for an online agreement is $31 if you set up automatic payments from your bank account, or $225 if you pay by check or other method. Automatic payments are cheaper and the IRS prefers them because missed payments are less likely.
Setting up a plan by phone or mail
You can call the IRS at 1-800-829-1040 to set up a plan. Have your Social Security number, date of birth, and information about your income and expenses ready. The IRS representative will walk you through the process and tell you what monthly payment they can offer based on what you tell them about your finances.
If you prefer to set up a plan by mail, fill out Form 9465 (Installment Agreement Request) and send it with your tax return or separately to the IRS address for your state. You can find the correct address on the form itself. This method takes longer — usually 30 days or more — because the IRS has to process it manually.
The setup fee for phone or mail agreements is $225 unless you set up automatic payments, which reduces it to $31. If you cannot afford the fee, you can request a fee waiver, though the IRS grants these only in cases of financial hardship.
What happens to interest and penalties while you pay
Setting up a payment plan does not stop interest or penalties from accruing. The IRS charges interest on unpaid taxes — the rate changes quarterly and is currently in the range of 8 to 9 percent per year, though this varies. You also owe penalties, typically 0.5 percent per month of the unpaid tax, unless you have a reasonable cause for not paying on time.
This means the longer your payment plan runs, the more you will owe in total. A $5,000 tax debt paid over 60 months will cost significantly more than the same debt paid over 12 months because of the interest that keeps adding up. When you make your monthly payment, part of it goes to interest and penalties, and the rest goes to the actual tax you owe.
If you can pay faster than the plan requires, you can do so without penalty. Paying extra toward your principal reduces the interest you will owe overall.
What breaks a payment plan and what happens next
Your agreement will be cancelled if you miss a payment. The IRS typically allows a 30-day grace period before taking action, but if you miss a second payment, the plan is usually terminated. Once cancelled, the IRS can resume collection actions like wage garnishment, bank levies, or tax liens.
If your plan is cancelled, you can set up a new one, but the IRS may be less flexible about the terms. You should contact the IRS as soon as you know you will miss a payment — sometimes they will work with you to adjust the plan or give you extra time.
Your plan will also end when you have paid off the full amount you owe. The IRS will send you a letter confirming that your tax debt is satisfied.
When a payment plan might not be your best option
If you owe a very large amount and your monthly payment would be extremely high, a payment plan might not be realistic. In those cases, you may want to explore other options like an Offer in Compromise (settling for less than you owe) or Currently Not Collectible status (temporarily pausing collection while you recover financially).
A payment plan also costs you more money overall because of interest and penalties. If you can borrow money from family, take out a personal loan, or find another way to pay the full amount quickly, you will save money in the long run.
If your tax debt is very recent and you believe you made an error on your return, you may want to file an amended return before setting up a plan. This can sometimes reduce or eliminate what you owe.
Frequently Asked Questions
Can I set up a payment plan if I have not filed my tax return yet?
No. You must file your return first so the IRS knows exactly what you owe. Once you file, you can set up a plan when ready. If you have not filed and owe taxes, file as soon as possible — the penalties for not filing are steeper than the penalties for not paying on time.
What if I cannot afford the monthly payment the IRS offers?
Contact the IRS and explain your situation. You can request a lower monthly payment, though this means your plan will run longer and you will owe more in interest. If you truly cannot pay anything right now, you may be able to request Currently Not Collectible status, which temporarily pauses collection while you get back on your feet.
Do I need a lawyer or tax professional to set up a payment plan?
No. You can set up a plan on your own through IRS.gov, by phone, or by mail. However, if your situation is complicated — you owe a large amount, have multiple years of unpaid taxes, or are facing other collection actions — a tax professional or attorney can help you understand your options.
What if I pay off my plan early?
You can pay off your plan at any time without penalty. Paying early reduces the interest you will owe. When you make extra payments, specify that they should go toward your principal balance, not future monthly payments.
Will a payment plan affect my credit score?
A tax debt itself does not appear on your credit report unless the IRS files a tax lien, which is a public record. A payment plan does not prevent a lien from being filed, but it does show the IRS you are taking action to resolve the debt, which can sometimes delay or prevent more serious collection actions.