Yes, you can pay taxes over time instead of all at once
If you owe taxes but cannot pay the full amount by the important date, the IRS and most state tax agencies let you set up a payment plan — an agreement to pay what you owe in smaller amounts over several months or years. You do not have to wait until you have the money saved. The sooner you set up a plan, the lower your total cost will be, because interest and penalties stop growing once you are on an official plan.
Payment plans come in two main types: short-term plans that last a few months, and long-term plans called installment agreements that can stretch across several years. The IRS charges a setup fee and interest on the unpaid balance, but these costs are usually much lower than the penalties you would face for not paying at all.
Key Takeaways
- The IRS offers short-term plans (120 days or less) with lower setup fees, and long-term installment agreements that can last up to six years.
- You can set up a federal payment plan online through IRS.gov, by phone at 1-800-829-1040, or by mail using Form 9465.
- State tax agencies have their own payment plan processes, so you will need to contact your state revenue department separately if you owe state taxes.
- Interest and penalties continue to accrue while you are on a payment plan, but the total cost is usually far less than the penalties for non-payment.
- Setting up a plan before the tax important date reduces your penalties and shows the IRS you are taking the debt seriously.
Federal payment plans through the IRS
The IRS has two main payment plan options. A short-term plan lets you pay off your debt within 120 days with a smaller setup fee (currently $31 if you set it up online). This works well if you know you will have the money soon but just need a few extra weeks or months.
A long-term installment agreement is what most people use when they cannot pay quickly. You can choose how much to pay each month, and the IRS will work with you on an amount that fits your budget — though the longer your plan stretches, the more interest you will pay overall. Setup fees for installment agreements range from $31 to $225 depending on how you set it up and your income level.
You can set up either plan online at IRS.gov (search "payment plan"), by calling 1-800-829-1040, or by mailing Form 9465 (Installment Agreement Request) with your tax return or bill. Online setup is fastest and cheapest. The IRS will tell you when ready whether your plan is approved.
State tax payment plans
Each state that has an income tax runs its own payment plan system. You cannot set up a state plan through the IRS — you have to contact your state's revenue or tax department directly. Some states call it an installment plan, others call it a payment agreement; the concept is the same.
To find your state's process, search "[your state] tax payment plan" or go to your state revenue department's website. Most states let you set up a plan online or by phone, though some still require a mailed form. State setup fees and interest rates vary widely, so it is worth checking what your state charges before you commit.
If you owe both federal and state taxes, you will need to set up two separate plans. The IRS plan covers only federal tax debt, and your state plan covers only state tax debt.
What happens to interest and penalties while you are on a plan
Interest and penalties (extra charges the IRS adds for paying late or underpaying) do not stop when you set up a payment plan. They continue to grow on your unpaid balance until the debt is fully paid. However, the penalty for failing to pay stops accruing once you have an official plan in place, which saves you money compared to ignoring the bill.
The interest rate is set by law and changes quarterly — currently it is quite low, but it varies. You will see the exact amount you owe in interest on each payment notice the IRS sends you. If your plan will last several years, the total interest can add up significantly, so paying faster when possible saves money.
How much you pay each month and how long the plan lasts
With a long-term installment agreement, you and the IRS agree on a monthly payment amount. The IRS will suggest an amount based on what you owe and how long you want the plan to last, but you can negotiate. If the suggested amount is too high, you can ask for a lower payment — the plan will just last longer and cost more in interest.
Most installment agreements last between two and six years, though the exact timeline depends on how much you owe and what monthly payment you can afford. The IRS will not let you stretch a plan longer than six years unless you owe a very large amount. You can always pay faster than your plan requires without penalty.
You can set up automatic payments from your bank account (called a direct debit), which lowers your setup fee and ensures you never miss a payment. Many people find this the easiest way to stay on track.
What disqualifies you from a payment plan
You cannot set up a payment plan if you have not filed a tax return for the year you owe taxes on. You must file first, even if you cannot pay. Filing on time (or filing late but before the IRS contacts you) shows good faith and keeps your penalties lower.
If you are already on a payment plan and you miss a payment, the IRS can cancel the plan and demand full payment when ready. If this happens, you can request a new plan, but it is better to contact the IRS before you miss a payment if you know you will be late. The IRS is often willing to adjust your monthly amount or give you a brief extension if you ask.
If you owe taxes from multiple years, you can include all of them in one installment agreement, which simplifies things. However, you must have filed returns for all those years.
Payment plan costs and how to minimize them
The main costs of a payment plan are the setup fee and the interest on your unpaid balance. Setup fees are lowest if you set up online ($31 for short-term plans, $31 for long-term plans if you use direct debit, $225 if you do not). Mailing in a form costs more.
Interest is charged on whatever balance remains unpaid. The longer your plan lasts, the more interest you pay overall. If you can afford to pay more than your minimum monthly amount, doing so reduces the total interest you will owe. Even small extra payments add up over time.
The cost of a payment plan is almost always far less than the cost of not paying. The IRS charges a failure-to-pay penalty of 0.5% of your unpaid tax per month (up to 25% total), plus interest. A payment plan stops the failure-to-pay penalty from growing, which is why setting one up quickly saves money even if you are only paying a small amount each month.
What to do if you cannot afford any monthly payment
If you cannot afford even a small monthly payment, you have other options. You can request Currently Not Collectible status, which temporarily pauses collection efforts while you deal with financial hardship. Interest and penalties still accrue, but the IRS stops trying to collect until your situation improves.
You can also request an Offer in Compromise, which is a settlement where you pay less than you owe if the IRS agrees you cannot pay the full amount. These are difficult to get approved, but they exist for people in genuine hardship. Both of these require separate requests to the IRS, usually with documentation of your income and expenses.
Start by calling the IRS at 1-800-829-1040 and explaining your situation. They can tell you which option makes sense for you.
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, even if you cannot pay. Once you file, you can when ready set up a payment plan. Filing late costs less in penalties than not filing at all, so file as soon as you can.
What happens if I miss a payment on my plan?
The IRS may cancel your plan and demand full payment. However, if you contact them before you miss a payment and explain the situation, they often will adjust your monthly amount or give you extra time. Do not ignore a missed payment — call 1-800-829-1040 right away.
Can I pay off my plan early without a penalty?
Yes. You can pay off your entire balance at any time without penalty. Paying early saves you interest, so if you come into money, paying down your plan faster is always a good choice.
Do I need a payment plan if I owe a small amount?
If you owe less than $25,000 in federal tax, you can set up a plan. For very small amounts (under $100 or so), you might just pay in full, but a plan is available if you need it. Check what your state allows for state taxes.
Will a payment plan hurt my credit score?
A payment plan itself does not appear on your credit report. However, if you do not pay your taxes and the IRS files a lien (a legal claim against your property), that can affect your credit. Setting up a plan and sticking to it prevents a lien from being filed.