Yes, you can set up a payment plan, but the terms depend on who you owe and how much

If you owe taxes to the IRS (federal) or your state, both allow you to pay over time instead of in one lump sum. The IRS calls this an installment agreement. Your state tax agency has its own version, usually called a payment plan or installment plan. The catch: you will still owe interest and penalties on top of what you owe, and those grow while you pay. A payment plan stops the IRS from taking more aggressive collection steps — like seizing your bank account or putting a lien on your home — but it does not erase the debt or the extra charges.

The process is straightforward if you owe less than $50,000 to the IRS. You can set up a plan online, by phone, or by mail without talking to a person. If you owe more, or if your state is involved, the steps are different and may require more paperwork. Either way, you need to file your tax return first — you cannot set up a plan for taxes you have not yet reported.

Key Takeaways

  • The IRS offers short-term plans (120 days or less) with no setup fee, and long-term installment agreements that charge a one-time fee ranging from $31 to $225 depending on how you set it up.
  • You must file your tax return before you can set up any payment plan, even if you cannot pay what you owe.
  • The IRS Online Payment Agreement tool lets you set up a plan in minutes if you owe under $50,000 and have a Social Security number or ITIN.
  • State tax agencies have separate payment plans with their own rules, fees, and timelines — contact your state revenue department directly.
  • Interest and penalties keep growing while you pay, so a shorter plan costs less overall than a longer one.

How the IRS short-term plan works

If you can pay off what you owe within 120 days, the IRS offers a short-term payment plan with no setup fee. You straightforward tell the IRS when you will pay and stick to that date. This is the cheapest option because you avoid the one-time fee that longer plans charge. You still owe interest and penalties, but you pay them faster and they do not compound as much.

To set up a short-term plan with the IRS, call 1-800-829-1040 during business hours, or use the Online Payment Agreement tool at IRS.gov if you prefer not to call. You will need your Social Security number, the tax year you owe for, and the amount. The IRS will confirm the plan by mail.

Long-term installment agreements with the IRS

If you need more than 120 days to pay, you will set up a long-term installment agreement. The IRS charges a setup fee — $31 if you set it up online or by phone, $225 if you set it up by mail, or $225 if the IRS initiates the plan because you did not respond to a notice. This fee is added to what you owe.

You can choose how much to pay each month, as long as the plan is finished within six years. The IRS will not accept a plan that stretches longer than that. Monthly payments can be as low as $25, but the longer your plan, the more interest you will pay overall. For example, a $5,000 debt paid over three years costs more in interest than the same debt paid over one year.

Set up a long-term plan using the Online Payment Agreement tool (for debts under $50,000), by calling 1-800-829-1040, or by mailing Form 9465 (Installment Agreement Request) to the IRS address on your tax notice. Online and phone setups are faster and cheaper because they avoid the $225 mail fee.

State tax payment plans

Every state that has an income tax allows payment plans, but each state runs its own system. There is no single number to call or website that covers all states. You will need to contact your state's revenue or tax department directly — search "[your state] tax payment plan" or "[your state] installment agreement" to find the right office.

State plans vary widely. Some charge a setup fee, some do not. Some allow you to pay over several years, others cap the timeline shorter. Some require you to make payments by automatic bank transfer, others accept checks or credit cards. A few states will not set up a plan unless you owe above a certain amount. Call your state tax office and have your Social Security number and the amount you owe ready. They will tell you what documents you need and what your monthly payment would be.

What happens if you miss a payment

If you miss a payment on your plan, the IRS or your state will send you a notice. You have a window — usually 30 days — to catch up or contact them to explain. If you do not respond, the plan can be cancelled and the IRS or state can resume collection action, which includes bank levies, wage garnishment, or liens on your property.

If you know you will miss a payment, contact the IRS or your state before the due date. They can sometimes adjust your plan, extend the important date, or put collection on hold temporarily. Waiting until after you miss the payment makes it harder to negotiate.

Lowering your monthly payment if circumstances change

If your income drops or your expenses rise after you set up a plan, you can request a lower monthly payment. The IRS calls this a modification. You can modify an IRS plan online through the Online Payment Agreement tool, by calling 1-800-829-1040, or by mailing Form 9465-C (Installment Agreement Modification Request).

Lowering your payment means your plan will last longer and you will pay more interest overall. But if you cannot afford the current payment, a modification keeps you from defaulting on the plan. State tax agencies also allow modifications — contact your state revenue department to ask how.

When a payment plan might not be the right choice

A payment plan is useful if you genuinely cannot pay in full but can afford monthly payments. It is less useful if you are in severe financial hardship — the IRS has a process called Currently Not Collectible status that pauses collection and interest accrual for a time if you truly cannot pay anything. This is different from a payment plan and requires a separate request.

A payment plan is also not the right choice if you can borrow the money at a lower interest rate than the IRS charges. IRS interest is currently around 8 percent per year (it changes quarterly), plus penalties. If you can borrow at 5 percent, borrowing and paying in full is cheaper. However, most people in this situation do not have access to low-cost borrowing, so a payment plan is often the realistic option.

Frequently Asked Questions

Do I have to file my tax return before I set up a payment plan?

Yes. You cannot set up a plan for taxes you have not reported. File your return first, even if you cannot pay. The IRS will send you a bill, and that is when you set up the plan. If you file late, you will owe a failure-to-file penalty on top of what you already owe.

Can I set up a payment plan if I owe both federal and state taxes?

Yes, but they are separate plans. You will set up one with the IRS for federal taxes and another with your state revenue department for state taxes. Each has its own payment schedule, fees, and rules. Contact both agencies to find out what each plan will cost you monthly.

What if I cannot afford even the lowest monthly payment the IRS offers?

Contact the IRS and ask about Currently Not Collectible status. This temporarily pauses collection efforts and stops interest from accruing. You will still owe the debt, but the IRS will not pursue it while you are in hardship. This status is reviewed periodically and can end if your situation improves.

Will a payment plan hurt my credit score?

The IRS does not report to credit bureaus, so a federal payment plan will not show up on your credit report. State tax agencies vary — some report to credit bureaus, some do not. Ask your state tax office whether a payment plan appears on your credit report.

Can I pay off my plan early without a penalty?

Yes. You can pay off an IRS installment agreement early at any time without penalty. Paying early saves you interest because you stop accruing it sooner. State plans also typically allow early payoff, but confirm with your state tax office.