What an IRS payment plan does
An IRS payment plan lets you pay your tax debt in monthly installments instead of all at once. The IRS calls this an "installment agreement." When you set one up, you agree to pay a fixed amount each month until your balance is paid off. The IRS stops collection action while you're making payments on time, though interest and penalties continue to accrue on what you owe.
You can set up a payment plan through IRS.gov, by phone, or by mail. The process takes a few minutes online if you have your tax return information and a bank account ready. The IRS offers different types of plans depending on how much you owe and your income.
Key Takeaways
- You can set up a payment plan online at IRS.gov without calling or mailing forms if you owe $50,000 or less in combined taxes, penalties, and interest.
- The IRS charges a setup fee (usually $31 to $225 depending on your method) and may charge a monthly user fee if you choose automatic payments from your bank account.
- Short-term plans (120 days or fewer) have lower fees than long-term plans, and you can change your monthly payment amount if your situation changes.
- If you owe more than $50,000, you must contact the IRS by phone at 800-829-1040 or work with a tax professional to set up a plan.
- Interest and penalties keep growing while you pay, so paying faster saves you money even if your monthly payment is smaller.
Setting up a plan online through IRS.gov
The fastest way to set up a payment plan is through the IRS Online Payment Agreement tool on IRS.gov. You'll need your Social Security number or Individual Taxpayer Identification Number, your filing status, your tax year, and the amount you owe. You'll also need a bank account number and routing number if you want to pay by automatic bank withdrawal.
Go to IRS.gov, search for "Online Payment Agreement," and select the tool. Answer the questions about your tax debt and income. The tool will show you what monthly payment amount the IRS suggests and what fees explore. You can adjust the payment amount up or down within limits. Once you confirm, you'll get a confirmation number when ready, and your plan is active.
This method works only if you owe $50,000 or less in total tax, penalties, and interest combined. If you owe more, you'll need to call the IRS or mail Form 9465 (Installment Agreement Request) with your tax return.
IRS fees and how they work
The IRS charges a setup fee when you create a payment plan. The amount depends on how you set it up: $31 if you pay by automatic bank withdrawal, $225 if you pay by check or money order, and $31 to $225 if you use a credit or debit card (the card processor may add their own fee on top). Short-term plans (120 days or fewer) have a lower setup fee of $31.
If you choose automatic payments from your bank account, the IRS may also charge a monthly user fee of $0.225 per payment. This fee is small but adds up over a long payment plan. You can avoid this fee by paying by check or money order each month, though that requires more effort on your part.
These fees are added to your tax debt, so you'll pay them as part of your monthly installment. Interest continues to accrue on your entire balance, including the fees, until you pay everything off.
How much you'll pay each month
Your monthly payment depends on how much you owe and how long you want to take to pay it off. The IRS will suggest a payment amount based on your debt, but you can request a different amount as long as it's high enough to pay off your balance within the plan term.
For example, if you owe $5,000 and want a 24-month plan, your monthly payment would be roughly $208 before interest and fees. If you want to pay it off in 12 months, your payment would be roughly $417. The IRS allows you to request a plan of up to 72 months (six years) for larger debts, though longer plans mean more interest charges overall.
You can request a lower payment if you're facing financial hardship, but the IRS may require proof of your income and expenses. You can also change your payment amount later if your situation changes — you don't have to stick with your original agreement.
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 before your agreement is cancelled. If your agreement is cancelled, the IRS can resume collection action, including wage garnishment or bank levies.
If you know you'll miss a payment, contact the IRS before the due date. You can request a temporary delay or ask to modify your payment plan. The IRS is more willing to work with you if you reach out first rather than straightforward missing the payment.
If you miss payments repeatedly, the IRS may file a Notice of Federal Tax Lien, which affects your credit and your ability to borrow money. This lien stays on your record even after you pay off the debt, though you can request it be removed once you've paid in full.
When to use a payment plan versus other options
A payment plan makes sense if you can afford to pay your debt within a reasonable time frame — typically within five to six years. If your monthly payment would be very small (under $25 or so), a payment plan may not be practical because interest will keep growing faster than you're paying it down.
If you can't afford any monthly payment, you may want to explore an Offer in Compromise, which lets you settle your debt for less than you owe. This requires proving you truly cannot pay. You can also request Currently Not Collectible status, which pauses collection action temporarily while you're facing hardship, though interest and penalties still accrue.
If you owe a very large amount (over $50,000), you may need professional help. A tax professional or Enrolled Agent can negotiate with the IRS on your behalf and may be able to get you a better payment plan or explore other options.
Paying your monthly installment
Once your plan is set up, you'll receive a notice from the IRS with your agreement details and payment instructions. You can pay by automatic bank withdrawal, check, money order, credit card, or debit card. Automatic withdrawal is the cheapest option because it has the lowest setup fee and no monthly user fee if you set it up correctly.
To set up automatic payments, you'll provide your bank account and routing number. The IRS will withdraw your payment on the date you choose each month. Make sure you have enough money in your account on that date, or the payment will fail and you'll be in default.
If you pay by check or money order, mail it to the address shown in your agreement notice. Include your tax ID number and the tax year on the check. Payments by mail take longer to process, so mail your payment at least two weeks before the due date to avoid being late.
Frequently Asked Questions
Can I set up a payment plan if I'm self-employed or have a business?
Yes. Self-employed people and business owners can set up payment plans the same way as employees. You'll need to report your business income on your tax return, and the IRS will calculate your payment plan based on what you owe. If you owe more than $50,000, you'll need to call the IRS or work with a tax professional.
What if I pay off my plan early?
You can pay off your plan early without penalty. There's no prepayment fee, and you'll save money on interest by paying faster. Contact the IRS to confirm your payoff amount before sending a final payment, because interest accrues daily and the exact amount changes each day.
Does a payment plan affect my credit score?
A payment plan itself doesn't show up on your credit report. However, if the IRS filed a Notice of Federal Tax Lien before you set up the plan, that lien will appear on your credit report and will hurt your score. Once you pay off your debt in full, you can request the lien be withdrawn.
Can I set up a payment plan for back taxes from multiple years?
Yes. You can combine tax debt from multiple years into one payment plan. The IRS will calculate your total debt across all years and create one monthly payment that covers everything. This is simpler than managing separate plans for each year.
What if my income changes while I'm on a payment plan?
You can request to modify your payment plan if your income changes. Contact the IRS and explain your situation. If your income increased, you can request a higher payment to pay off the debt faster. If your income decreased, you can request a lower payment, though this will extend your plan and increase the total interest you pay.