The IRS lets you pay what you owe in monthly installments instead of a lump sum, but you need to set up the plan before the IRS takes collection action against you.

If you cannot pay your full tax bill when you file, the IRS offers installment agreements — formal arrangements where you make fixed monthly payments until the debt is cleared. The IRS charges interest and penalties on unpaid taxes, and those continue to accrue while you pay, but an installment plan stops the IRS from garnishing your wages, seizing your bank account, or placing a lien on your property as long as you stay current on payments.

You can set up a plan online through the IRS website, by phone, or by mail. The process takes a few days to a few weeks depending on the method and your income level. The monthly payment amount depends on how much you owe and how long you want to take to pay it back — anywhere from a few months to six years or longer for larger debts.

Key Takeaways

  • The IRS offers short-term plans (120 days or less) with no setup fee, and long-term installment agreements with a one-time setup fee that ranges from $31 to $225 depending on how you apply.
  • You can set up a plan online at IRS.gov using the Online Payment Agreement tool if you owe $50,000 or less in combined taxes, penalties, and interest.
  • Monthly payments must be at least $25, and the IRS will not lower your payment amount just because you say you cannot afford it — you must provide financial information to request a lower payment.
  • If you miss a payment or fall behind, the IRS can cancel your agreement and resume collection action, including wage garnishment and bank levies.
  • Interest and penalties continue to accrue on your unpaid balance throughout the life of the plan, so paying faster saves you money.

Short-term vs. long-term payment plans

A short-term plan lets you pay off your debt in 120 days or fewer with no setup fee. This option works if you need just a few months to gather the money but can pay the full amount relatively soon. The IRS does not require you to provide detailed financial information for a short-term plan, and you can set one up quickly online or by phone.

A long-term installment agreement spreads payments over months or years and requires a setup fee. The fee depends on how you apply: $31 if you set it up online or by phone using direct debit from your bank account, $225 if you apply by mail or phone without direct debit, and $31 if you are a low-income taxpayer (defined by the IRS each year based on federal poverty guidelines). Long-term plans require you to provide financial details so the IRS can set a payment amount you can sustain.

The longer your plan, the lower your monthly payment but the more interest and penalties you pay overall. A $5,000 debt paid over 12 months costs less in interest than the same debt paid over 60 months, so the IRS encourages faster repayment.

How to set up a payment plan online

The fastest route is the Online Payment Agreement tool on IRS.gov, available if you owe $50,000 or less in combined taxes, penalties, and interest. You will need your Social Security number or Individual Taxpayer Identification Number, your filing status, your tax year, and your bank account information if you want to set up direct debit (which qualifies you for the lower $31 setup fee).

The tool walks you through entering your debt amount and choosing a payment frequency — monthly, biweekly, or semimonthly. You then select how long you want to take to pay (the system shows you the resulting monthly payment for each option) and review the terms before confirming. The agreement is active immediately, and you receive a confirmation number on screen and by email.

If you owe more than $50,000, you must apply by phone at 800-829-1040 or by mail using Form 9465 (Installment Agreement Request). Phone applications take longer because an IRS representative reviews your financial situation, but you get an answer the same day. Mail applications can take four to six weeks.

What the IRS needs to know about your finances

For a long-term plan, the IRS asks about your income, expenses, assets, and debts to determine what you can afford to pay each month. If you apply online for a plan under $50,000, the system uses a standard formula based on your debt amount and does not require detailed financial disclosure — it simply calculates a payment that would clear the debt in a reasonable timeframe.

If you apply by phone or mail, or if your debt exceeds $50,000, you will need to provide a Collection Information Statement (Form 433-F for individuals). This form asks for your monthly income from all sources, your rent or mortgage, utilities, food, transportation, insurance, childcare, and other necessary expenses. The IRS subtracts your expenses from your income to find your "disposable income" — the amount available for tax payments each month.

The IRS uses this calculation to set your monthly payment. If you claim you cannot afford the payment they propose, you can request a lower amount, but you must provide the financial form to support that request. Simply saying you cannot afford it does not change the payment.

Fees, interest, and what you actually pay

The setup fee is a one-time charge added to your tax debt. A $31 fee on a $5,000 debt means you now owe $5,031, which is then divided into monthly payments. The fee is not refundable even if you pay off the plan early.

Interest and penalties continue to accrue on your unpaid balance every month. The IRS charges interest at a rate set quarterly (currently around 8 percent annually, though this changes). Penalties for failing to pay on time are typically 0.5 percent of your unpaid taxes per month, up to 25 percent total. These charges are added to your balance, so your monthly payment covers both principal and the growing interest and penalties.

If you receive a tax refund in a future year while you have an active installment agreement, the IRS will automatically apply that refund to your debt, reducing the balance and potentially shortening your plan. You cannot opt out of this — it is automatic.

What happens if you miss a payment

If you miss a payment, the IRS typically sends you a notice giving you 30 days to catch up. If you pay within that window, your agreement stays in place. If you do not pay, the IRS can default your agreement, meaning the plan is cancelled and the full remaining balance becomes due immediately.

Once your agreement is defaulted, the IRS resumes collection action: wage garnishment (the IRS orders your employer to withhold a portion of your paycheck), bank levies (the IRS takes money directly from your bank account), or a tax lien (a legal claim against your property). These actions are serious and can damage your credit and make it hard to borrow money or sell property.

If you know you will miss a payment, contact the IRS before the due date. You can request a short-term extension, modify your agreement to a longer timeline with a lower payment, or in some cases request a temporary pause. The key is to reach out proactively — ignoring a missed payment guarantees default.

Modifying or cancelling your agreement

You can change your payment amount or extend your plan if your financial situation changes. Contact the IRS by phone at 800-829-1040 or log into your IRS account online to request a modification. The IRS may charge another setup fee if you extend the agreement significantly, though modifications within the original terms usually do not trigger an additional fee.

If you receive a large sum of money — a bonus, inheritance, or tax refund — you can pay down your balance faster without penalty. Paying ahead reduces the total interest you pay and shortens your plan. There is no prepayment penalty with the IRS.

You can also cancel your agreement at any time and pay the full remaining balance. This might make sense if you come into money and want to eliminate the debt and stop paying interest. Once cancelled, you owe the full amount immediately, so this is only practical if you actually have the funds.

Frequently Asked Questions

Can I get a payment plan if I have not filed my tax return yet?

No. You must file your return first so the IRS knows what you owe. Once you file, you can set up a plan immediately. If you have not filed in years, contact a tax professional or the IRS to discuss filing back returns before setting up a payment plan.

What if I cannot afford the minimum $25 monthly payment?

You must provide financial information showing the IRS why you cannot afford $25 per month. In rare cases, the IRS may accept a payment below $25 or place your account in "currently not collectible" status, which pauses collection action temporarily while interest and penalties continue to accrue. You will need to apply by phone or mail, not online.

Does a payment plan stop the IRS from taking my tax refund?

No. The IRS automatically applies any future refund to your installment agreement balance. This is not optional. If you want to keep your refund, you must pay off the agreement in full before filing your next return.

Can I set up a payment plan for state taxes too?

No. This plan covers only federal income taxes owed to the IRS. Each state has its own payment plan process. Contact your state tax agency directly to learn about state payment options.

What if I cannot pay the full amount even with a payment plan?

You may be able to request an Offer in Compromise, which allows you to settle your tax debt for less than the full amount owed. This requires proving you cannot pay the full debt even over time. Offers in Compromise are difficult to obtain and require detailed financial documentation, so consult a tax professional if you think this applies to you.