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How IRS Payment Plans Work When You Can't Pay Your Tax Bill All at Once

By Tanika Patel
8 minute read

What an IRS payment plan does and who can set one up

An IRS payment plan is an agreement that lets you pay your tax bill in monthly installments instead of in full right away. The IRS offers this to people who owe federal income tax but cannot pay the entire amount by the tax deadline. You do not need to prove financial hardship — the IRS will set up a plan for almost any amount owed, though you will pay interest and penalties on top of what you owe until the debt is fully paid.

There are two main types: a short-term plan for smaller debts (usually under $10,000) that you pay off in 180 days or less, and a long-term installment agreement for larger amounts that can stretch years. The IRS charges a setup fee to open the plan, ranging from about $31 to $225 depending on which type you choose and how you pay. Monthly payments vary based on how much you owe and how long you want to take to pay it.

Key Takeaways

  • You can set up a payment plan directly with the IRS online, by phone, or by mail without proving you cannot afford to pay in full.
  • Short-term plans (under 180 days) cost less to set up than long-term plans, but require larger monthly payments.
  • Interest and penalties keep growing on your unpaid balance each month, so the longer you take to pay, the more you owe in total.
  • The IRS can still place a lien on your property or garnish your wages while you are on a payment plan, though this is less common if you are current on payments.
  • If you miss a payment or fall behind, the IRS can cancel the plan and demand the full remaining balance immediately.

How to set up a payment plan with the IRS

The fastest way is to use the IRS Online Payment Agreement tool on the IRS website (irs.gov). You will need your Social Security number, date of birth, and the amount you owe. The tool walks you through selecting a plan type, choosing a monthly payment amount, and picking a due date that works for your pay schedule. You can set up a plan this way in minutes, and the IRS will send you a confirmation number immediately.

If you prefer not to use the online tool, you can call the IRS at 1-800-829-1040 during business hours and speak to a representative who will help you set up the plan over the phone. You can also mail Form 9465 (Installment Agreement Request) to the IRS address listed in your tax notice, though this takes longer — usually two to four weeks to process.

Before you set up a plan, make sure your tax return is filed. The IRS cannot accept a payment plan request for a year you have not filed a return for, even if you owe money. If you are behind on filing, file first, then request the plan.

What happens to interest and penalties while you are paying

Interest accrues on your unpaid tax balance every single day you owe money, at a rate set by the IRS that changes quarterly. As of early 2024, the rate is around 8 percent per year, but this varies. You also owe a failure-to-pay penalty of 0.5 percent of your unpaid tax per month (or part of a month) until the bill is paid. These penalties and interest are added to your balance each month, which means your total debt grows even as you make payments.

This is why a short-term plan costs you less overall than a long-term plan: the fewer months you take to pay, the less interest and penalty accumulates. If you owe $5,000 and pay it off in six months, you will owe less in total interest than if you stretch the same debt over three years. The IRS will show you the total cost of your chosen plan before you confirm it.

Setup fees and how to choose between plan types

The IRS charges a fee to set up a payment plan. A short-term plan (180 days or less) costs $31 if you pay online or by phone, or $225 if you mail in Form 9465. A long-term installment agreement costs $31 to $225 depending on how you set it up and your income level. Low-income taxpayers (those whose income is below certain thresholds set by the IRS each year) may pay a reduced fee of $31 for any plan type.

Choose a short-term plan if you can pay off the debt in six months or less — the setup fee is lower and you will pay less interest overall. Choose a long-term plan if you need more than 180 days. The IRS will calculate your minimum monthly payment based on your total debt and the length of the plan. You can always pay more than the minimum in any month to finish faster and reduce interest.

What the IRS can still do while you are on a payment plan

Being on a payment plan does not stop the IRS from taking other collection actions, though they usually hold off if you are making your payments on time. The IRS can still place a tax lien on your property, which is a legal claim against your assets. A lien does not mean the IRS will seize your home or car, but it does affect your credit and makes it harder to sell property or borrow money.

The IRS can also garnish your wages or levy your bank account if you fall behind on the payment plan. However, if you are current on your monthly payments, the IRS typically will not pursue these actions. If you know you will miss a payment, contact the IRS immediately — they may be willing to adjust your plan or give you a short grace period rather than cancel it outright.

What happens if you miss a payment or cannot keep up

If you miss a payment, the IRS will send you a notice. You usually have 30 days to bring the account current before the IRS cancels the plan. Once the plan is cancelled, the full remaining balance becomes due immediately, and the IRS can resume collection actions like wage garnishment or bank levy.

If your financial situation changes and you cannot afford your current monthly payment, do not just stop paying. Instead, contact the IRS at 1-800-829-1040 and ask to modify your plan. The IRS can lower your monthly payment and extend the plan, though this means paying more interest overall. Modifying a plan is much better than defaulting, because it keeps you in agreement with the IRS and prevents them from taking more aggressive collection steps.

Alternatives to a payment plan

If you cannot afford even a modified payment plan, you may be able to request an Offer in Compromise, which is a settlement where you pay less than the full amount owed. The IRS only accepts these in specific situations — usually when you genuinely cannot pay the full debt even over time, or when there is doubt about whether the debt is correct. The process is lengthy and the IRS denies most offers, so this is not a quick solution.

You can also request Currently Not Collectible status, which temporarily pauses collection while you are in severe financial hardship. The debt does not go away, and interest keeps accruing, but the IRS will not pursue garnishment or levy while you are in this status. You can request this by calling 1-800-829-1040 or by submitting Form 433-F (Collection Information Statement for Wage Earners and Self-Employed Individuals).

Frequently Asked Questions

Can I set up a payment plan if I owe less than $1,000?

Yes. The IRS will set up a payment plan for any amount owed. For very small amounts (under $1,000), a short-term plan is usually the best choice because the setup fee is lower and you can pay it off quickly. You can still use the online tool or call the IRS to request one.

What if I want to pay off the plan early?

You can pay more than your monthly minimum at any time with no penalty. Paying extra reduces your balance faster, which means less interest accrues. Simply make an extra payment through the IRS payment portal, by phone, or by mail, and note that it should go toward your principal balance.

Does a payment plan affect my credit score?

The IRS does not report payment plans to credit bureaus, so the plan itself does not show up on your credit report. However, if the IRS places a tax lien on your property, that lien may appear on your credit report and can lower your score. Staying current on your plan payments helps prevent a lien from being filed.

Can I set up a payment plan for a prior year's taxes?

Yes. You can set up a plan for any tax year you owe on, as long as you have filed a return for that year. If you have not filed, you must file first. The IRS will combine all years you owe into one plan if you request it, or you can set up separate plans for each year.

What happens to my payment plan if I get a refund next year?

The IRS will automatically apply your refund to your payment plan balance. This reduces what you owe and can help you pay off the plan faster. You cannot prevent this — the IRS applies all refunds to outstanding tax debt by law.