What an IRS payment plan does

An IRS payment plan lets you pay your tax debt over time instead of in one lump sum. The IRS calls this an installment agreement. You make monthly payments until the full amount — including penalties and interest — is paid off. The IRS charges a setup fee and interest on the unpaid balance, so paying in full would cost less, but a plan keeps you from defaulting on the debt.

The IRS offers several types of plans. A short-term plan is for balances under $100,000 and gives you up to 180 days to pay with no setup fee. A long-term installment agreement is for larger debts and can stretch payments over years. There is also an online payment agreement you can set up yourself if you owe less than $50,000 and meet other conditions. Each type has different fees and rules.

Key Takeaways

  • You can set up a payment plan directly on IRS.gov using the Online Payment Agreement tool if you owe under $50,000 and have filed all required returns.
  • The IRS charges a setup fee (usually $31 to $225 depending on the plan type) plus interest on your unpaid balance each month.
  • A short-term plan covering 180 days or less has no setup fee, but you must pay the full balance within that window.
  • If you cannot pay the setup fee upfront, you can request a fee reduction or ask to have it added to your monthly payment.
  • Once approved, you must make payments on time each month or the agreement can be terminated and the full balance becomes due immediately.

The three main types of IRS payment plans

The short-term payment plan is the simplest option if your balance is small. You have up to 180 days to pay, there is no setup fee, and you do not need to provide financial information. You can request this plan by phone or through IRS.gov. The catch is that the full balance must be paid within those six months, so your monthly payment will be higher than with a longer plan.

A long-term installment agreement spreads payments over months or years and is used for larger debts. The IRS charges a setup fee of $31 to $225 depending on how you set it up (online costs less than by phone or mail). You will also pay interest and penalties on the unpaid balance each month. This plan requires you to provide financial information so the IRS can determine whether you can afford the monthly payment.

The online payment agreement is available only through IRS.gov and only if you owe $50,000 or less, have filed all required tax returns for the past five years, and have no other outstanding tax issues. The setup fee is $31, the lowest available. You can choose your payment amount and due date within limits. This route is fastest because there is no phone call or paperwork to mail.

How to set up a payment plan on IRS.gov

Go to IRS.gov and search for "Online Payment Agreement" or navigate to the payment plan section under Payments. You will need your Social Security number or Individual Taxpayer Identification Number, your filing status, and your tax year. The tool will ask you to enter the tax year and the amount you owe. If you are setting up a plan for a balance the IRS has already assessed, have your most recent notice in front of you — it shows the exact amount due.

The system will tell you whether you are may be able to access for the online agreement. If your balance is over $50,000, you cannot use this tool and must call the IRS or mail Form 9465 (Installment Agreement Request). If you are may be able to access, the tool will let you choose your monthly payment amount and the date each month when it is due. The IRS will calculate how many months the plan will run based on your payment amount. You can then review the terms, including the setup fee and interest rate, before you confirm.

Once you submit, you will receive a confirmation number. The IRS will send you a formal agreement by mail within two weeks. Do not make a payment until you receive this letter — it will tell you where to send payments and confirm all the terms. If you set up automatic payments from your bank account (which the IRS encourages), the fee is reduced to $31 regardless of plan type.

Setup fees and how to reduce them

The IRS charges a one-time setup fee when you enter an installment agreement. The amount depends on how you set it up: $31 if you use the online tool or set up automatic bank payments, $225 if you call the IRS, and $225 if you mail in Form 9465. These fees do not go toward your tax debt — they are a separate charge for administering the plan.

If you cannot afford the setup fee, you can request a reduction or ask to have it added to your first monthly payment. To request a fee reduction, you must show financial hardship. Call the IRS at 1-800-829-1040 and explain your situation, or include a letter with Form 9465 if you are mailing it. The IRS is not required to reduce the fee, but they will consider your request. Adding the fee to your first payment is usually approved without question, though it means your first payment will be larger than the rest.

Monthly payments and interest

Your monthly payment amount is up to you within limits set by the IRS. The minimum payment depends on your total debt. For balances under $10,000, the IRS typically expects you to pay the full amount within three years. For larger balances, the IRS calculates a minimum based on how much you owe and your ability to pay. You can always pay more than the minimum, and doing so will reduce the total interest you pay.

Interest accrues on your unpaid balance every day. The IRS charges the federal short-term interest rate plus 3 percent. This rate changes quarterly. As of early 2024, the rate is around 8 percent annually, but check IRS.gov for the current rate. Interest is added to your balance each month, so if you pay only the minimum, you will pay more total interest than if you pay faster.

Penalties also apply to unpaid tax debt. The most common is the failure-to-pay penalty, which is 0.5 percent of the unpaid tax per month (up to 25 percent total). This penalty stops accruing once you enter a payment plan, but it is added to your starting balance. The IRS will send you a statement each year showing how much interest and penalties have been added.

What happens if you miss a payment

If you miss a payment, the IRS will send you a notice. You typically have 30 days to make the payment before the agreement is terminated. Once terminated, the full remaining balance becomes due immediately, and the IRS can begin collection action, including wage garnishment or bank levy. Missing a single payment does not automatically end the plan, but repeated missed payments will.

If you are having trouble making a payment, contact the IRS before the due date. You can request a temporary delay, a lower payment amount, or a new agreement. The IRS is more likely to work with you if you reach out proactively rather than waiting for a notice. Call 1-800-829-1040 or log into your IRS account online to request a change.

Alternatives if a payment plan does not work

If your financial situation is dire and you cannot afford even a small monthly payment, you may be able to request Currently Not Collectible status. This temporarily pauses collection action while interest and penalties continue to accrue. The IRS will review your case periodically to see if your situation has improved. This is not forgiveness — you still owe the debt — but it stops wage garnishment and bank levies while you recover.

Another option is an Offer in Compromise, which allows you to settle your tax debt for less than the full amount owed. This is difficult to obtain and requires detailed financial documentation. The IRS only accepts an Offer in Compromise if there is genuine doubt about your ability to pay the full amount or if paying would create severe hardship. You can explore this option through IRS.gov or by working with a tax professional.

Frequently Asked Questions

Can I set up a payment plan if I owe penalties and interest?

Yes. The payment plan covers the original tax debt plus all penalties and interest that have accrued. The total amount owed is what you will pay off through the plan. Interest continues to accrue on the unpaid balance each month, so the longer the plan runs, the more interest you will pay overall.

What if my income changes while I am on a payment plan?

You can request a modification to your plan at any time. If your income increased, you can pay more per month to finish faster. If your income decreased, you can ask the IRS to lower your monthly payment. Contact the IRS at 1-800-829-1040 or log into your online account to request a change.

Do I need a tax professional to set up a payment plan?

No. If you owe $50,000 or less and have filed all required returns, you can set up the plan yourself on IRS.gov in about 15 minutes. For larger debts or complex situations, a tax professional or enrolled agent can help, but it is not required.

Will a payment plan hurt my credit score?

The IRS does not report payment plans to credit bureaus, so the plan itself will not appear on your credit report. However, if the IRS filed a tax lien before you set up the plan, that lien will remain on your credit report and will affect your score. Once you pay off the debt, you can request that the lien be released.

Can I pay off my plan early without a penalty?

Yes. You can pay off your remaining balance at any time without penalty. Paying early will save you interest since interest stops accruing once the debt is paid in full. There is no fee for early payment.