Yes, you can set up a payment plan with the IRS if you owe federal income tax
The IRS allows you to pay your tax bill over time instead of in one lump sum. The agency calls this an installment agreement. You can request one whether you owe a small amount or several thousand dollars. The IRS will charge you interest and a setup fee, but you avoid the larger penalties that come with ignoring the debt.
The process is straightforward: you tell the IRS how much you can pay each month, they approve the plan if your offer is reasonable, and you make monthly payments until the balance is zero. Most people set these up online or by phone within a few days of deciding to do it.
Key Takeaways
- The IRS offers installment agreements for any unpaid federal tax balance, and you can set one up online through IRS.gov or by calling 1-800-829-1040.
- Short-term plans (120 days or less) have no setup fee, but long-term plans charge a fee that ranges from $31 to $225 depending on how you set it up.
- Interest accrues daily on your unpaid balance, and the IRS charges a failure-to-pay penalty of 0.5% per month on top of the interest.
- You must file your tax return even if you cannot pay the full amount due—filing late carries steeper penalties than paying late.
- State tax agencies have their own payment plan rules, which differ from federal rules and vary by state.
How the IRS installment agreement process works
You start by contacting the IRS directly. You can set up a plan online at IRS.gov using the Online Payment Agreement tool, by phone at 1-800-829-1040, or by mail using Form 9465 (Installment Agreement Request). The online route is fastest—you can complete it in minutes and get when ready confirmation.
The IRS will ask you how much you can pay each month. Be honest about this number. If you say you can pay $500 a month but you cannot, the IRS will eventually contact you about the missed payment, and you may lose the agreement. If your circumstances change and you cannot make a payment, contact the IRS before the due date to modify the plan.
Once approved, you receive a notice showing your monthly payment amount, the due date each month, and the total interest and fees you will pay. Payments typically come out of your bank account automatically on the date you choose, though you can also pay by check, credit card, or debit card.
Setup fees and interest charges
The IRS charges a one-time setup fee when you create an installment agreement. If you set it up online, the fee is $31 for a long-term plan. If you set it up by phone or mail, the fee is $225. If your plan lasts 120 days or fewer, there is no setup fee at all.
On top of the setup fee, you pay interest on your unpaid balance. The IRS sets the interest rate quarterly—it is currently around 8% per year, though it changes. Interest accrues daily, meaning the longer you take to pay off the balance, the more interest you owe. The IRS also charges a failure-to-pay penalty of 0.5% per month on any unpaid tax, which stacks on top of the interest.
Example: if you owe $5,000 and set up a 24-month plan at $250 per month, you will pay roughly $1,200 in interest and penalties by the time the plan ends. The exact amount depends on the interest rate in effect during your payment period.
Different types of installment agreements
The IRS offers several versions of installment agreements, and the one you get depends on how much you owe and how you set it up.
Short-term extension. If you owe less than $100,000, you can request a short-term extension of up to 120 days with no setup fee. This gives you time to scrape together the full payment without entering a long-term plan. You still owe interest and penalties during this period.
may provide installment agreement. If you owe $31,000 or less and set up the plan online, the IRS will approve it automatically without reviewing your financial situation. The setup fee is $31. This is the fastest route for smaller balances.
Standard installment agreement. If you owe more than $31,000 or set up the plan by phone or mail, the IRS reviews your income and expenses to decide whether your proposed monthly payment is reasonable. The setup fee is $225. This takes longer to approve but works for any balance.
Partial payment installment agreement. If you cannot pay the full balance even over several years, you can propose a plan that pays part of what you owe. The IRS reviews this carefully and may reject it if your offer seems too low. These are rare and require more documentation.
What happens if you miss a payment
If you miss a payment, the IRS will send you a notice. You have 30 days to make the payment or contact the IRS to explain. If you do neither, the IRS can terminate the agreement and demand the full remaining balance when ready.
If you know you will miss a payment, call the IRS before the due date. You can request a one-time extension or modify the plan to lower your monthly payment. The IRS is more willing to work with you if you reach out first rather than straightforward missing the payment.
A missed payment also resets the clock on your debt. The IRS can file a tax lien against your property if you owe more than $15,000 and default on the agreement. A lien makes it harder to sell property or borrow money, so avoiding default is important.
State tax payment plans
If you owe state income tax, you will need to contact your state tax agency separately—the federal installment agreement does not cover state debt. Each state has its own rules about payment plans, and some states are more flexible than others.
Most states allow payment plans for unpaid income tax, but the setup process, fees, and terms vary widely. Some states charge setup fees similar to the IRS; others charge none. Some allow you to set up a plan online; others require a phone call or written request. Contact your state's department of revenue or taxation directly to learn what options are available.
If you owe both federal and state tax, you will have two separate payment plans with two different monthly payments. Budget for both when deciding how much you can afford to pay each month.
Why filing your return matters even if you cannot pay
Many people delay filing their tax return because they know they cannot pay the full amount due. This is a mistake. The penalty for filing late is much steeper than the penalty for paying late.
If you file late, the IRS charges a failure-to-file penalty of 5% per month on the unpaid tax (up to 25% total). If you pay late but file on time, the penalty is only 0.5% per month. The difference is enormous. File your return by the important date, then set up a payment plan for what you owe. You will pay far less in penalties this way.
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. The IRS needs to know exactly what you owe before it will approve a payment plan. File your return by the important date even if you cannot pay, then request the installment agreement.
What if I owe less than $1,000?
You can still set up an installment agreement, but it may not be necessary. Contact the IRS to discuss your options. For very small balances, paying in full or requesting a short-term extension may be simpler than a long-term plan.
Does an installment agreement stop the IRS from garnishing my wages or seizing my bank account?
Yes. Once you have an approved installment agreement, the IRS stops collection actions like wage garnishment or bank levies. If the IRS has already started garnishing your wages, setting up a plan will stop it.
Can I pay off the plan early without a penalty?
Yes. You can pay off the remaining balance at any time without penalty. Paying early saves you interest, since interest stops accruing once the balance reaches zero.
What if my financial situation changes and I cannot afford the monthly payment?
Contact the IRS before your next payment is due. You can modify the agreement to lower your monthly payment and extend the plan, or you can request a temporary pause. The IRS will not automatically lower your payment—you have to ask.