Yes, you can set up a payment plan, but the IRS and your state tax agency each have their own rules and timelines

If you owe federal income tax, the Internal Revenue Service (IRS) offers payment plans called installment agreements. If you owe state income tax, your state's tax department has its own payment plan program—the rules differ by state. Both let you pay what you owe over time instead of in one lump sum, but you'll pay interest and penalties on top of the original amount, and the IRS charges a setup fee.

The key difference between the two: federal payment plans are relatively straightforward to set up online or by phone, while state plans vary widely. Some states let you set up a plan in minutes; others require you to contact a specific office or submit forms by mail. Neither the IRS nor any state will forgive the debt or reduce what you owe just because you're on a plan.

Key Takeaways

  • The IRS offers short-term plans (120 days or less) with no setup fee and long-term installment agreements (more than 120 days) with a setup fee ranging from $31 to $225 depending on how you set it up.
  • You can set up an IRS payment plan online through IRS.gov, by phone at 1-800-829-1040, or through a tax professional, and most decisions happen within days.
  • State payment plans work differently in each state—some allow online setup, others require phone contact or mailed forms, and rules about interest, penalties, and plan length vary significantly.
  • Interest and penalties continue to accrue while you're on a payment plan, so the longer your plan runs, the more you'll owe in total.
  • If you fall behind on your plan payments, the IRS or state can terminate the agreement and pursue collection actions like wage garnishment or bank levies.

How IRS payment plans work and what they cost

The IRS has two types of installment agreements: short-term plans (you pay off the debt in 120 days or less) and long-term plans (you pay over more than 120 days). Short-term plans have no setup fee. Long-term plans charge a setup fee that depends on how you enroll.

If you set up a long-term plan online or through the IRS's automated phone system, the setup fee is $31. If you call a live IRS representative or have a tax professional set it up for you, the fee is $225. The IRS also charges interest on the unpaid balance—currently 8% per year, though this rate changes quarterly—plus a failure-to-pay penalty of 0.5% per month on any unpaid tax.

You can set up an IRS payment plan in three ways: online at IRS.gov (fastest, no fee waiver available), by calling 1-800-829-1040 (automated system or live representative), or through a tax professional like a CPA or enrolled agent. Online setup usually takes minutes and you'll know when ready if you're approved. Phone and professional setup can take a few business days.

Setting up a federal payment plan step by step

To set up an IRS payment plan online, go to IRS.gov and look for "Online Payment Agreement." You'll need your Social Security number or Individual Taxpayer Identification Number (ITIN), your filing status, the tax year(s) you owe for, and the amount you owe. The system will ask you to choose a monthly payment amount and a due date that works for your budget. The IRS will tell you when ready whether you're approved.

If you call 1-800-829-1040, have the same information ready. The automated system can walk you through setup, or you can ask to speak with a representative. A representative can discuss your financial situation and may be able to adjust the payment amount if the automated system's offer doesn't fit your budget.

Once your plan is approved, you'll receive a notice in the mail confirming the monthly payment amount, the due date, and the total interest and penalties you'll owe. You can pay each month online, by phone, through automatic bank withdrawal, or by mail. Missing a payment can terminate your plan, so set a calendar reminder or use automatic withdrawal if possible.

State tax payment plans: what varies by location

Every state with an income tax has its own payment plan process, and the rules are not standardized. Some states allow you to set up a plan online in minutes; others require you to call a specific office or mail in a form. Some states charge a setup fee; others don't. Some allow plans up to 60 months; others cap them at 24 months.

To find your state's process, search "[your state] income tax payment plan" or go directly to your state's Department of Revenue or Tax Department website. Look for a section on "payment plans," "installment agreements," or "deferred payment." If you can't find it online, call the main customer service number and ask how to set up a payment plan for state income tax.

Most states require you to have a current tax return filed before they'll set up a plan. Some states will not set up a plan if you're under audit or if you owe from multiple years. A few states require you to pay a portion upfront before they'll approve a plan. These rules change, so confirm the current requirements with your state before you start the process.

What happens to interest and penalties while you're on a payment plan

Interest and penalties do not stop accruing just because you're on a payment plan. The IRS charges interest on the unpaid balance every day until it's paid in full. The failure-to-pay penalty (0.5% per month) also continues. This means the longer your plan runs, the more you'll owe in total.

For example, if you owe $5,000 and set up a 60-month plan, you'll pay roughly $100 per month in principal, but you'll also pay interest and penalties on top of that. By the time the plan ends, you may have paid $6,000 or more depending on interest rates and how quickly you pay.

If you can pay off the debt faster than your plan requires, do it. Paying early stops the interest clock and saves you money. The IRS will not penalize you for paying ahead of schedule.

What to do if you can't afford the monthly payment

If the IRS's proposed payment amount is too high, call 1-800-829-1040 and ask to speak with a representative. They can lower your monthly payment, but this extends the length of your plan and increases the total interest you'll pay. The IRS has limits on how low they'll go—generally, your monthly payment must be at least enough to cover the interest accruing each month, though there are exceptions for hardship situations.

If you're facing severe financial hardship, you can request an Offer in Compromise, which is a settlement for less than the full amount owed. This is a separate process from a payment plan and requires detailed financial documentation. It's rarely approved, but it's worth exploring if you truly cannot pay what you owe.

For state taxes, contact your state's tax department and explain your situation. Some states have hardship provisions or can temporarily pause collection while you stabilize your finances. Others will not negotiate and will proceed with collection actions if you miss payments.

What happens if you miss a payment or can't keep up

If you miss a payment on an IRS installment agreement, the IRS will send you a notice. You typically have 30 days to bring the account current before the agreement is terminated. Once terminated, the full remaining balance becomes due when ready, and the IRS can begin collection actions: wage garnishment, bank levies, or a lien on your property.

If you know you'll miss a payment, contact the IRS before the due date. You may be able to request a short extension or modify your plan. Waiting until after you miss the payment makes it harder to negotiate.

State tax agencies have similar policies. Missing a state payment plan payment can result in termination and collection action. Contact your state's tax department when ready if you're struggling to make a payment.

Frequently Asked Questions

Can I set up a payment plan if I'm being audited?

The IRS will usually set up a payment plan even if you're under audit, as long as you've filed your return. However, if the audit results in additional tax owed, that amount may be added to your plan or require a new agreement. State rules vary—some states won't set up a plan during an audit, so check with your state first.

How long can a payment plan last?

The IRS allows plans up to 72 months (six years) for most taxpayers, though plans can be shorter. State plans vary—some cap at 24 months, others allow up to 60 months. Longer plans mean lower monthly payments but more interest overall.

Do I still have to file my tax return if I'm on a payment plan?

Yes. A payment plan only covers what you owe; it doesn't change your filing requirement. You must file your return every year, even while paying off back taxes. Failing to file can result in additional penalties and may cause the IRS to terminate your payment plan.

Can I set up a payment plan for estimated tax payments I missed?

Not directly. Estimated tax payments are separate from income tax owed. If you owe estimated taxes and can't pay them, you'll owe penalties and interest, but you can set up a payment plan for the total amount due (original tax plus penalties and interest) once it's assessed.

What if I get a refund while I'm on a payment plan?

The IRS will automatically explore your refund to your payment plan balance, reducing what you owe. You won't receive the refund as cash. If you want to avoid this, you can request an offset bypass, though this is rarely granted and requires a specific financial hardship claim.