What a tax payment plan is and who can use one
A payment plan (also called an installment agreement) lets you pay taxes you owe in monthly chunks instead of one lump sum. The IRS and most state tax agencies offer them. You make regular payments over months or years until the debt is paid off, and you stop accumulating failure-to-pay penalties once the plan is in place — though interest still accrues on the unpaid balance.
Payment plans exist for federal income tax, self-employment tax, and most state income taxes. You can set one up whether you owe $500 or $50,000. The IRS does not require you to prove hardship; you just need to owe money and be willing to pay it back on a schedule. If you cannot pay the full amount today, a payment plan is usually your fastest route to stop collection calls and keep your refunds from being seized.
The catch: you will pay interest and possibly setup fees. A short-term plan (120 days or less) usually costs nothing to set up. Longer plans charge a fee that ranges from $31 to $225 depending on how you set it up and your income level. Interest compounds daily on the unpaid balance, so the longer you stretch the payments, the more you pay overall.
Key Takeaways
- The IRS offers payment plans through its website, by phone, or by mail, and you can set one up in the same year you file or years later.
- Short-term plans (under 120 days) have no setup fee; longer plans cost $31 to $225 depending on your income and payment method.
- You must make payments on time or the plan cancels and collection actions resume, so set up automatic payments if possible.
- State tax agencies run their own payment plans separately from the IRS, so you may need to contact your state revenue office if you owe state tax.
- Interest and penalties continue to accrue even while you are on a payment plan, so paying faster saves money.
How to set up a federal payment plan with the IRS
The IRS offers three main routes: online, by phone, or by mail. Online is fastest if you have a Social Security number, know what you owe, and can set up automatic payments from a bank account or debit card.
To set up online, go to IRS.gov and use the Online Payment Agreement tool. You will enter your tax year, the amount owed, and your preferred payment amount. The system will show you the total interest and fees you will pay and the date your plan will end. You can choose to pay weekly, biweekly, or monthly. The IRS will send you a confirmation letter by mail within two weeks.
If you cannot pay online or prefer to speak to someone, call the IRS at 1-800-829-1040. Have your Social Security number, the tax year you owe for, and the amount ready. A representative will walk you through the same questions and set up the plan over the phone. This route takes longer — expect to wait on hold — but does not require internet access or a bank account set up in advance.
You can also mail Form 9465 (Installment Agreement Request) to the IRS address listed in your tax notice. Include a check or money order for your first payment if possible. Mail takes four to six weeks to process, so use this route only if you cannot access a phone or the internet.
Payment amounts, fees, and how long plans last
You choose your monthly payment amount when you set up the plan. The IRS will suggest an amount based on what you owe and how long you want to pay, but you can negotiate. The longer you stretch payments, the lower each monthly bill — but the more interest you pay overall.
Setup fees depend on how you set up the plan and your income:
| Setup Method | Fee |
|---|---|
| Online or phone with automatic payments | $31 |
| Online or phone without automatic payments | $225 |
| Mail (Form 9465) | $225 |
| Low-income taxpayers (online or phone) | $31 |
The IRS considers you low-income if your household income is at or below 250% of the federal poverty line for your family size. If you may have access to, the fee is $31 regardless of payment method.
Plans can run anywhere from a few months to six years, depending on how much you owe and what you can afford to pay. The IRS will not approve a plan that stretches longer than six years unless you have a very large debt. Interest accrues daily on the unpaid balance at the current federal rate (which changes quarterly), so a six-year plan on a $10,000 debt will cost significantly more than a two-year plan.
What happens if you miss a payment or cannot keep up
If you miss a payment, the IRS will send you a notice. You have up to 30 days to make the payment before the plan is cancelled. Once cancelled, the IRS can resume collection actions: wage garnishment, bank levies, or liens on your property.
If your financial situation changes and you cannot afford the monthly payment, contact the IRS before you miss a payment. You can request a modification to lower the payment amount or extend the plan. Call 1-800-829-1040 or log into your IRS account online to request a change. The IRS will not charge a fee to modify an existing plan.
If you fall behind and the plan is cancelled, you can set up a new one, but the IRS may require a larger down payment or shorter timeline. It is better to contact them early if you see trouble coming.
State tax payment plans
Most states offer their own payment plans for state income tax debt, separate from the federal IRS plan. You must contact your state revenue office directly — the IRS cannot set up a state plan for you.
State plans work similarly to federal ones: you choose a monthly payment, pay setup fees (usually $25 to $100), and interest accrues on the balance. Some states allow you to set up a plan online; others require a phone call or mail. A few states will combine a state and federal plan into one payment if you owe both, but this is rare and depends on your state.
To find your state's payment plan process, search "[your state] tax payment plan" or "[your state] installment agreement." You can also call your state's revenue or tax department — the number is usually on your tax notice or on the state's website.
Automatic payments and what to do if you do not have a bank account
The IRS strongly prefers automatic payments because they reduce the chance you will miss a due date. If you set up automatic payments, your fee is lower ($31 instead of $225), and the IRS will deduct the payment from your bank account or debit card on the date you choose each month.
To set up automatic payments, you will need a U.S. bank account or debit card and routing and account numbers. You can change the payment date or amount anytime by logging into your IRS account or calling 1-800-829-1040.
If you do not have a bank account, you can still set up a payment plan, but the fee will be $225 and you will need to mail a check or money order each month. Some people in this situation open a basic checking account at a bank or credit union specifically to lower the fee and avoid missing payments. The account does not need a minimum balance, and many banks offer free checking.
Payment plans for self-employment tax and prior-year debts
If you are self-employed and owe self-employment tax (Social Security and Medicare tax on business income), you can set up a payment plan the same way as for income tax. The process is identical: use the Online Payment Agreement tool, call the IRS, or mail Form 9465.
You can also set up a plan for tax debt from multiple years at once. For example, if you owe $3,000 from 2022 and $2,500 from 2023, one payment plan can cover both. The IRS will combine the amounts and calculate one monthly payment and one end date.
If you have not filed taxes for several years, you cannot set up a payment plan until you file all back returns. The IRS will not accept a plan for unfiled years. File the returns first (you can do this by mail or with a tax preparer), then set up the payment plan for the total amount owed across all years.
Frequently Asked Questions
Can I set up a payment plan if I am already in collections or have a wage garnishment?
Yes. Setting up a payment plan will stop a wage garnishment and pause collection calls. The IRS will lift the garnishment once the plan is approved, usually within two weeks. You must make payments on time or the garnishment will resume.
What if I cannot afford any monthly payment right now?
Contact the IRS and ask about a Currently Not Collectible status. This temporarily pauses collection actions and stops interest from accruing (though penalties still do). You can request this by phone at 1-800-829-1040 or by mail. The IRS will review your case every two years and may resume collection if your income improves.
Will a payment plan hurt my credit score?
A payment plan itself does not appear on your credit report. However, the original tax debt may have already been reported to credit bureaus. Once you are on a plan and making payments, the account status may improve over time, but this depends on the credit bureau and how the IRS reports it.
Can I pay off the plan early without a penalty?
Yes. You can pay the full remaining balance at any time without penalty. Paying early saves you interest, since interest stops accruing once the debt is paid in full. There is no fee to close out a plan early.
What if I receive a tax refund while I am on a payment plan?
The IRS will automatically apply your refund to the tax debt. Your refund will not be sent to you; instead, it will reduce what you owe. Your monthly payment amount stays the same unless you request a modification, so paying off the debt faster this way saves you interest.