What a payment arrangement is and when you need one
A payment arrangement is a plan you make with the IRS to pay your tax debt over time instead of in one lump sum. You set up a schedule — weekly, biweekly, or monthly — and the IRS collects the amount you agree to until the debt is paid off. The IRS calls this an "installment agreement."
You need a payment arrangement if you owe taxes but cannot pay the full amount by the tax important date. The IRS will not let you ignore the debt — they will eventually seize your bank account, garnish your wages, or place a lien on your property if you do not pay or make a formal arrangement. Setting up a plan stops those collection actions and gives you time to pay.
The IRS offers several types of arrangements depending on how much you owe and your income. Some are handled entirely online, others require a phone call or written request. The type you use depends on your debt amount and whether you want the IRS to deduct payments automatically from your bank account.
Key Takeaways
- A payment arrangement lets you pay your tax debt in monthly installments instead of a lump sum, and stops the IRS from taking collection action against you.
- The IRS offers short-term arrangements (120 days or less) with no setup fee, and long-term arrangements that charge a fee between $31 and $225 depending on how you set it up.
- You can set up an arrangement online through IRS.gov if you owe $50,000 or less, or by phone at 800-829-1040 if you owe more.
- The IRS will charge interest and penalties on top of what you owe, and these continue to grow until the debt is fully paid.
- Missing a payment on your arrangement can end the plan, and the IRS can resume collection action when ready.
Types of payment arrangements and their costs
The IRS offers two main categories: short-term arrangements and long-term installment agreements.
A short-term arrangement covers 120 days or less. You do not pay a setup fee. This works if you expect to have the money within four months — for example, you are waiting for a bonus or a tax refund. You can request a short-term arrangement by phone at 800-829-1040 or through the IRS website.
A long-term installment agreement is what most people use. It spreads payments over months or years. The setup fee depends on how you set it up: $31 if you pay by direct debit from your bank account, $225 if you pay by check or money order, and $31 to $225 if you pay by credit card (the credit card company may also charge you a processing fee). If your income is below a certain threshold, you may may have access to for a reduced fee of $31.
On top of the setup fee, you pay interest on the unpaid balance. The IRS charges interest monthly, and the rate changes quarterly. As of early 2024, the rate is around 8 percent per year, but this varies. You also continue to owe penalties — usually 0.5 percent of the unpaid tax per month — until the debt is gone.
How to set up an arrangement online
If you owe $50,000 or less in combined tax, penalties, and interest, you can set up a long-term arrangement online without talking to anyone. Go to IRS.gov and look for "Online Payment Agreement." You will need your Social Security number or Individual Taxpayer Identification Number, your date of birth, and your filing status.
The tool will ask you how much you want to pay each month. The IRS will suggest a payment amount based on your debt and how long you want to take to pay it off. You can accept that amount or change it — but if you choose a lower payment, the plan will last longer and you will pay more interest overall.
Once you enter your bank account information for direct debit, the IRS will confirm your arrangement when ready. You will receive a confirmation number on screen and by email. Your first payment is usually due 21 days after you set up the plan. Mark that date on your calendar — missing the first payment can cancel the entire arrangement.
If you owe more than $50,000, or if you want to pay by check or credit card instead of direct debit, you must call the IRS at 800-829-1040 or submit Form 9465 by mail.
Setting up an arrangement by phone or mail
Call the IRS at 800-829-1040 during business hours (Monday through Friday, 7 a.m. to 7 p.m. your local time). Have your tax return, your most recent pay stub, and a list of your monthly expenses ready. The IRS representative will ask about your income and expenses to figure out what you can afford to pay each month.
If you prefer to mail a request, use Form 9465 (Installment Agreement Request). Attach it to your tax return or send it separately to the IRS address shown in the form instructions. The IRS will mail you a response within 30 days, though it can take longer during busy seasons.
Whether you call or mail, you will need to provide: your name, address, and Social Security number; the tax year(s) you owe for; how much you owe; how much you can pay each month; and your preferred payment date (usually between the 1st and 28th of each month). If you are self-employed or have other income sources, bring documentation of that income.
What happens after your arrangement is approved
Once the IRS approves your arrangement, you will receive a notice in the mail showing the payment amount, the due date each month, and the total number of payments. Keep this notice — it is your proof that you have a plan in place.
Your payments will be deducted automatically from your bank account on the date you chose, or you can pay by check, money order, or credit card. Make sure the money is in your account before the due date. If a payment bounces or is late, the IRS may cancel the arrangement without warning.
Interest and penalties continue to accrue on the unpaid balance every month. This means your total debt grows even as you make payments. The longer your arrangement lasts, the more interest you will pay. For this reason, paying more than the minimum each month — if you can — will save you money.
If your financial situation improves and you can pay off the debt faster, you can request to increase your monthly payment or pay the balance in full at any time without penalty.
What to do if you cannot make a payment
If you miss a payment, contact the IRS when ready. A single missed payment does not automatically end your arrangement, but the IRS may cancel it if you miss two payments in a row or miss payments in three or more months during the life of the plan.
Call 800-829-1040 and explain your situation. The IRS may allow you to catch up the missed payment, adjust your monthly amount, or extend the arrangement. If your arrangement is cancelled, you will owe the full remaining balance when ready, and the IRS can resume wage garnishment, bank levies, or other collection action.
If your income has dropped permanently or your expenses have risen, you can request to modify your arrangement. The IRS will ask for updated financial information and may lower your monthly payment or extend the plan. There is no fee to modify an existing arrangement.
How a payment arrangement affects your credit and taxes
Having a payment arrangement does not directly hurt your credit score — the IRS does not report to credit bureaus. However, if the IRS filed a tax lien (a legal claim against your property) before you set up the arrangement, that lien stays on your credit report and will damage your score. Once you pay off the debt in full, you can request that the IRS release the lien, which will improve your credit over time.
A payment arrangement also does not change your tax filing requirement. You must continue to file a tax return every year, even while you are paying off old debt. If you do not file, the IRS can cancel your arrangement and pursue collection action.
If you receive a tax refund while you have an arrangement in place, the IRS will automatically explore that refund to your debt. You will not receive the refund as a check or deposit. This is true even if the refund is from a different tax year than the debt you are paying off.
Frequently Asked Questions
Can I set up a payment arrangement if I have already received a wage garnishment or bank levy?
Yes. In fact, setting up an arrangement is one of the fastest ways to stop a garnishment or levy. Contact the IRS when ready at 800-829-1040 and tell them you want to set up a plan. Once the arrangement is approved, the IRS will release the garnishment or levy. You will need to provide proof of the garnishment or levy notice.
What if my payment arrangement ends before my debt is paid off?
If the IRS cancels your arrangement, you will owe the full remaining balance when ready. The IRS will send you a notice giving you a important date to pay. If you do not pay by that date, they can resume collection action, including wage garnishment, bank levy, or property seizure. You can request a new arrangement, but the IRS may require you to pay a higher monthly amount or offer less favorable terms.
Do I have to pay the setup fee upfront?
No. The setup fee is usually added to your first payment or spread across your monthly payments. If you set up the arrangement online with direct debit, the $31 fee is typically deducted from your bank account along with your first payment. Ask the IRS representative or check your confirmation notice to see how the fee will be handled.
Can I have more than one payment arrangement at a time?
Generally, no. The IRS will only allow one active long-term installment agreement per person. If you owe for multiple tax years, all of those debts will be combined into a single arrangement. If you already have an arrangement and owe additional taxes, you can request to modify the existing plan to include the new debt.
What happens to my arrangement if I move to a different state?
Your arrangement stays in effect. The IRS does not care where you live — your payments continue on the same schedule. Make sure to update your address with the IRS so you receive notices and payment coupons at your new location. You can update your address online at IRS.gov or by calling 800-829-1040.