How IRS payment plans work in December 2025

The IRS offers payment plans to people who cannot pay their full tax bill when it is due. A payment plan lets you pay what you owe in smaller monthly amounts instead of one lump sum. The IRS has different types of plans depending on how much you owe and how quickly you can pay it back.

In December 2025, the rules for these plans remain the same as they have been. The IRS does not change payment plan terms based on the calendar month — what matters is the amount you owe, your income, and which plan type you choose. However, if you are setting up a new plan in December, the first payment date and the timing of your monthly payments will fall in December and beyond.

Payment plans do not erase what you owe. They also do not stop interest and penalties from growing on your unpaid balance. The longer you take to pay, the more interest accumulates. This is why the IRS encourages people to pay as much as they can upfront, even if they still need a plan for the remainder.

Key Takeaways

  • The IRS offers three main payment plan types: short-term (120 days or less), long-term installment agreements, and streamlined installment agreements, each with different setup fees and may be able to access thresholds.
  • Setting up a payment plan in December 2025 works the same way as any other month — you can request one through IRS.gov, by phone, or through a tax professional, and your first payment will be due in the month you agree to.
  • Payment plans do not stop interest and penalties from accruing on your unpaid balance, so the total amount you pay grows the longer the plan lasts.
  • The IRS charges a setup fee to open a payment plan, ranging from $31 to $225 depending on the plan type and how you set it up.
  • If you miss a payment on your plan, the IRS can terminate it and pursue collection action, so understanding your payment schedule before you commit is important.

The three payment plan types and their setup costs

A short-term payment plan covers balances you can pay off within 120 days. There is no setup fee for this plan. You work directly with the IRS to choose a payment schedule that fits within that window. This plan is the least expensive option because the IRS does not charge you to set it up, but it requires you to pay faster than the other options.

A long-term installment agreement is for people who need more than 120 days to pay. The setup fee ranges from $31 to $225 depending on how you set up the plan. If you set it up online through IRS.gov or through an IRS payment processor, the fee is lower. If you set it up by phone or mail, the fee is higher. This plan can last several years, and your monthly payment is calculated based on your total debt and the timeframe you choose.

A streamlined installment agreement is available if you owe $50,000 or less in combined tax, penalties, and interest. The setup fee is $31 if you set it up online, or $225 if you set it up by phone or mail. This plan has less paperwork than a standard long-term agreement and is designed for smaller debts. The IRS will not ask for detailed financial information, but your monthly payment will be higher because the plan must be paid off within six years.

How to set up a payment plan in December 2025

You can set up a payment plan through three main routes: online at IRS.gov, by phone, or through a tax professional or payment processor.

Online through IRS.gov is the fastest and cheapest option. You log into your IRS account, enter your tax information, and choose your payment amount and due date. The setup fee is $31 for a long-term plan or $31 for a streamlined plan. You can set up the plan in minutes, and your first payment is typically due within 30 days of approval.

By phone, you call the IRS at 1-800-829-1040. A representative will walk you through your options, discuss your financial situation, and set up the plan. The setup fee is $225 for a long-term plan or $225 for a streamlined plan. Processing by phone takes longer — usually several business days — and your first payment date will be set during the call.

Through a tax professional or payment processor, your accountant, tax attorney, or a third-party payment company can set up the plan on your behalf. They may charge their own fee in addition to the IRS setup fee. This route is useful if your tax situation is complex or if you want professional guidance, but it is more expensive than setting up the plan yourself.

What happens to your payment plan if you miss a payment

If you miss a payment on your plan, the IRS will send you a notice. You typically have 30 days to bring your account current before the IRS terminates the plan. Once the plan is terminated, you are back to owing the full balance when ready, and the IRS can resume collection action — including wage garnishment, bank levies, or a tax lien on your property.

If you know you will miss a payment, contact the IRS before the due date. You may be able to request a short extension, modify your payment amount, or restructure the plan. The IRS is more willing to work with you if you reach out proactively rather than waiting for them to contact you.

If your financial situation changes and you can no longer afford your monthly payment, you can request a modification. The IRS will review your current income and expenses and may lower your payment amount or extend the plan timeline. This process requires submitting a new financial statement, and the IRS will make a decision within 30 to 60 days.

Interest and penalties continue to grow while you pay

One of the most important things to understand about payment plans is that they do not stop interest and penalties from accruing. The IRS charges interest on unpaid tax at a rate that changes quarterly — in 2025, the rate is 8 percent per year, compounded daily. On top of that, you owe a failure-to-pay penalty of 0.5 percent per month on any unpaid balance.

This means that if you owe $10,000 and set up a three-year payment plan, you will pay significantly more than $10,000 by the time the plan ends. The exact amount depends on the interest rate during each quarter and how quickly you pay down the principal. The longer your plan lasts, the more interest you accumulate.

Because of this, the IRS encourages people to pay as much as they can upfront, even if they still need a plan for the remainder. For example, if you can pay $3,000 now and set up a plan for the remaining $7,000, you will pay less total interest than if you set up a plan for the full $10,000.

Payment plan options if you cannot afford the monthly payment

If the monthly payment the IRS calculates is more than you can afford, you have options. You can request a longer payment timeline, which lowers your monthly payment but increases the total interest you pay. You can also request a temporary pause or reduction in payments if you are experiencing financial hardship.

The IRS has a process called Currently Not Collectible status, which temporarily suspends collection action and pauses your payment plan. You still owe the debt, and interest continues to accrue, but you are not required to make monthly payments. This status lasts for up to 120 days, and the IRS will review your case after that period to see if your situation has improved. If it has not, you can request another 120-day period.

To request Currently Not Collectible status or a payment modification, you must submit a financial statement to the IRS showing your income, expenses, and assets. You can do this online, by mail, or by phone. The IRS will review your information and make a decision within 30 to 60 days.

Frequently Asked Questions

Can I set up a payment plan if I owe penalties and interest, not just the original tax?

Yes. Your payment plan covers the original tax amount plus any penalties and interest that have accrued. The IRS calculates your total debt and bases your monthly payment on that full amount. Interest continues to grow on the unpaid balance throughout the plan, so your total cost increases the longer the plan lasts.

What is the difference between a payment plan and an offer in compromise?

A payment plan lets you pay your full debt in installments. An offer in compromise is a request to settle your debt for less than you owe — the IRS accepts a lower amount and considers the debt satisfied. Offers in compromise are much harder to obtain and require detailed financial documentation. Most people with unpaid tax use a payment plan instead.

If I set up a payment plan in December, when is my first payment due?

Your first payment is typically due within 30 days of the plan approval date if you set it up online, or on the date the IRS representative specifies if you set it up by phone. If you set up the plan on December 15, your first payment might be due in mid-January. You choose the payment amount and frequency (usually monthly) during setup.

Can I pay off my payment plan early without a penalty?

Yes. You can pay off your plan balance at any time without penalty. If you pay early, you will owe less interest because the balance is paid down faster. There is no fee or penalty for early payment, and the IRS will not charge you extra for closing the plan ahead of schedule.

Does a payment plan affect my credit score?

A payment plan itself does not appear on your credit report. However, the original unpaid tax debt may have already been reported to credit bureaus, and that report can affect your score. Once you set up a payment plan and make payments on time, your credit may gradually improve, but the initial debt report will remain on your record for a period of time.