What a payment plan is and when you need one
A payment plan, called an installment agreement by the IRS, lets you pay your tax bill in monthly chunks instead of all at once. You set up the plan directly with the IRS, and they tell you the exact amount due each month and the date it's due. The IRS charges interest and a setup fee on top of what you owe, so the total cost is higher than paying in full — but if you cannot pay the whole bill now, a plan keeps you from defaulting and facing wage garnishment or bank levies.
You need a payment plan if you owe federal income tax and cannot pay the full amount by the tax important date. The IRS offers several types of plans depending on how much you owe and how long you need to pay it back. Most people use either a short-term plan (120 days or less) or a long-term installment agreement (longer than 120 days).
Key Takeaways
- The IRS charges a setup fee (between $31 and $225 depending on the plan type) and interest on any unpaid balance, so the total you pay is more than the original bill.
- You can set up a plan online through IRS.gov, by phone at 1-800-829-1040, or by mailing Form 9465 with your tax return or a separate letter.
- Short-term plans (120 days or less) have lower or no setup fees, while long-term plans require a formal installment agreement and higher fees.
- The IRS will tell you the exact monthly payment amount, and you must pay on time each month or the plan can be terminated and the full balance becomes due when ready.
- If your circumstances change and you cannot make a payment, contact the IRS before the due date to modify or temporarily pause the plan.
The three main types of payment plans
The IRS offers a short-term payment plan if you owe $100,000 or less and can pay within 120 days. There is no setup fee for this plan, and you arrange it by calling 1-800-829-1040 or setting it up online. The IRS will not file a Notice of Federal Tax Lien against your property, which is a legal claim the government can place on your assets.
A long-term installment agreement is for balances over $100,000 or payments that stretch beyond 120 days. This plan requires a formal setup, a setup fee between $31 and $225 (depending on how you set it up), and the IRS may file a tax lien. Monthly payments are typically $25 or more, and you can pay for up to 72 months (six years) depending on your balance.
A streamlined installment agreement sits in the middle: it is for balances of $50,000 or less, payments under 84 months, and a lower setup fee of $31. You can set this up online or by phone without submitting financial information. This is the fastest route for most people with moderate tax debt.
How to set up a plan online
The easiest way to set up a payment plan is through the IRS website at IRS.gov. Go to the "Online Payment Agreement" tool and enter your Social Security Number, date of birth, and the tax year of the bill you owe. The tool will show you your balance and let you choose a monthly payment amount that works for your budget.
The online tool works for streamlined and short-term plans only. If you owe more than $50,000 or need a plan longer than 84 months, you must use the phone or mail route. The online system will tell you when ready if you may have access to, and you can set up the plan in minutes. The IRS will send you a confirmation letter with your payment due date and amount.
Payment happens by automatic withdrawal from your bank account, a one-time check or money order, or through the IRS Direct Pay system. Automatic withdrawal is the most reliable because you cannot miss a payment by accident.
Setting up a plan by phone or mail
Call the IRS at 1-800-829-1040 to speak with a representative who can set up any type of plan, including those for balances over $50,000. Have your Social Security Number, date of birth, and a recent tax return or bill notice ready. The representative will ask about your income and expenses to determine what monthly payment you can afford, though they will not force you into a payment you cannot make.
If you prefer to mail, send Form 9465 (Installment Agreement Request) with your tax return when you file, or mail it separately to the address on your tax bill. Include a cover letter stating the amount you want to pay each month and the date you want payments to start. The IRS processes mailed requests in four to six weeks, so this is slower than online or phone setup.
Whether you call or mail, the IRS will send you a formal agreement letter that lists your monthly payment, the due date, the total interest and fees, and the payoff date. Keep this letter with your tax records.
What happens after you set up the plan
Once your plan is approved, you owe the monthly payment on the date the IRS specifies — usually the 15th or 28th of each month. If you set up automatic withdrawal, the money comes out of your bank account on that date. If you pay by check or money order, mail it early enough to arrive by the due date. Late payments can result in penalties and interest, and repeated late payments can cause the IRS to terminate the plan and demand the full balance when ready.
Interest accrues on your unpaid balance every day until it is paid off. The current federal interest rate is set by the IRS each quarter and is typically between 8% and 10% per year, though it changes. You will also owe a failure-to-pay penalty of 0.5% per month on any unpaid tax, which is separate from interest.
The IRS may still file a Notice of Federal Tax Lien if you have a long-term installment agreement. A tax lien is a legal claim on your property and can affect your credit and your ability to borrow money. If you stay current on your payments, the IRS will release the lien within 30 days of paying off the balance.
Modifying or ending your payment plan
If your financial situation changes and you cannot make your monthly payment, contact the IRS before the payment is due. Call 1-800-829-1040 and explain your situation. The IRS can lower your monthly payment, extend the plan to give you more time, or temporarily pause payments if you are facing a hardship. Do not skip a payment without calling first — that counts as a missed payment and can terminate the plan.
If you come into money and want to pay off the plan early, you can do so without penalty. There is no fee for paying ahead or paying the full balance early. Send a check or money order with a note stating your account number and that the payment is toward your installment agreement, or pay through IRS Direct Pay online.
If the IRS terminates your plan because you missed payments, you will receive a notice. You have the right to request a hearing or appeal the termination, but you must act quickly — usually within 30 days of the notice. Contact a tax professional or the Taxpayer Advocate Service (a free IRS office that helps people in disputes) if this happens.
Understanding the costs: fees and interest
Setting up a payment plan costs money beyond your original tax bill. A short-term plan has no setup fee. A streamlined installment agreement costs $31 to set up online or $225 if you set it up by phone or mail. A long-term installment agreement costs $31 to $225 depending on the method, plus an additional $45 if you set it up by phone or mail instead of online.
On top of the setup fee, you pay interest on your unpaid balance. The IRS interest rate is compounded daily and is tied to the federal short-term rate plus 3%. As of 2024, this rate is typically around 8% to 10% annually, but it changes quarterly. You also owe a failure-to-pay penalty of 0.5% per month on any unpaid tax, which is separate from interest and continues to accrue until the balance is paid.
The longer your plan stretches, the more interest you pay overall. A $5,000 balance paid over 12 months costs less in interest than the same balance paid over 60 months. If you can afford a higher monthly payment, paying faster saves you money.
Frequently Asked Questions
Can I set up a payment plan if I owe penalties and interest, not just the original tax?
Yes. The payment plan covers the original tax, plus any penalties and interest that have accrued. Interest continues to accrue on the unpaid balance while you are on the plan, so the total you pay by the end will be higher than the amount you owed when you set up the plan.
What if I miss a payment?
Contact the IRS when ready at 1-800-829-1040 before the next payment is due. One missed payment does not automatically terminate the plan, but repeated missed payments will. The IRS can modify your plan or work with you on a temporary pause if you are facing hardship. If you do not contact them, they may file a levy against your bank account or wages.
Do I still have to file my tax return if I set up a payment plan?
Yes. A payment plan only covers what you owe on a specific tax bill. You must still file your return on time each year and pay any new tax due. If you do not file, the IRS can terminate your existing plan and pursue collection action.
Will a payment plan hurt my credit score?
A payment plan itself does not appear on your credit report. However, if the IRS files a Notice of Federal Tax Lien (which can happen with long-term plans), that lien may appear on your credit report and can lower your score. Staying current on your payments helps you avoid additional collection actions that would hurt your credit further.
Can I set up a payment plan for a bill from a previous year?
Yes. You can set up a plan for any unpaid tax bill, regardless of the year. However, the older the bill, the more interest has likely accrued. Contact the IRS with your Social Security Number and the tax year in question to find out your current balance and set up a plan.