Setting Up a Payment Plan for IRS Back Taxes
How the IRS lets you pay taxes you owe over time
If you owe the IRS money from past tax years, you do not have to pay it all at once. The IRS offers installment agreements — formal payment plans where you pay a set amount each month until your debt is cleared. The IRS will work with you on the amount and timeline, though they charge a fee to set up the plan and interest continues to accrue on what you owe.
The fastest way to set up a plan is through the IRS website using their online tool, which takes about 15 minutes. You can also call the IRS directly, mail in a form, or work through a tax professional. The method you choose depends on how much you owe and whether you want the IRS to take payments automatically from your bank account.
Key Takeaways
- The IRS offers three types of installment plans: short-term (120 days or less), standard (up to 72 months), and long-term (up to 84 months), each with different setup fees.
- You can set up a plan online through IRS.gov, by phone at 1-800-829-1040, or by mailing Form 9465 if you prefer not to use the internet.
- The IRS charges a setup fee (usually $31 to $225 depending on the plan type and method) and continues charging interest and penalties on your balance until it is paid off.
- If you set up automatic monthly payments from your bank account, the IRS reduces the setup fee and you avoid missed payments that could default your plan.
- You can change your payment amount or timeline later if your financial situation changes, though the IRS may charge another fee.
The three types of installment plans and their costs
A short-term plan covers what you owe in 120 days or less. You do not pay a setup fee, but this option only works if your debt is small enough to handle quickly. Most people with significant back taxes do not may have access to for this route.
A standard installment plan spreads payments over up to 72 months (six years). The setup fee is $31 if you pay by direct debit from your bank account, or $225 if you pay by check, money order, or credit card. This is the most common plan for people with moderate back tax debt.
A long-term plan runs up to 84 months (seven years) and costs $31 for direct debit or $225 for other payment methods. You would use this only if your debt is large and you need the longest possible timeline to make it manageable.
On top of the setup fee, the IRS charges interest on your unpaid balance — currently around 8 percent per year, though this rate changes quarterly. You also continue to owe any penalties that were assessed when the debt was created. Both interest and penalties add to your total balance each month until the plan is complete.
Setting up a plan online, by phone, or by mail
The Online Payment Agreement tool at IRS.gov is the fastest method if you owe $50,000 or less in combined income tax, penalties, and interest. You log in, enter your information, choose your payment amount, and set up direct debit from your bank account. The process takes about 15 minutes and you receive immediate confirmation. The setup fee is $31 because you are paying by direct debit.
If you owe more than $50,000, you must call the IRS at 1-800-829-1040 or mail in Form 9465 (Installment Agreement Request). When you call, have your Social Security number, the tax year(s) you owe for, and your bank account information ready. A representative will discuss your situation and set up the plan over the phone. Calling takes longer than the online tool — expect 30 to 60 minutes depending on wait times — but you can negotiate the payment amount directly.
If you mail Form 9465, include it with a check or money order for the setup fee and mail it to the IRS address shown in your most recent notice. Processing by mail takes four to six weeks. You do not need to mail the form if you use the online tool or call; those methods set everything up immediately.
What happens after your plan is approved
Once your plan is in place, the IRS sends you a notice showing your monthly payment amount, due date, and the total number of payments. If you set up direct debit, the IRS withdraws the payment automatically on the date you chose each month. If you chose to pay by check or money order, you send the payment yourself by the due date.
Missing a payment does not automatically end your plan, but if you miss three payments in a row, the IRS can terminate the agreement and demand the full remaining balance immediately. If you know you will miss a payment, contact the IRS before the due date to explain. They may allow you to catch up or adjust your plan temporarily.
Interest and penalties continue to accrue on your balance throughout the plan. This means your monthly payment covers some of the new interest and penalties, plus a portion of the original debt. The longer your plan, the more interest you will pay overall, but the monthly payment stays affordable.
Changing your payment amount or timeline
If your financial situation changes — you lose income, face a medical emergency, or your situation improves — you can modify your plan. You can request a lower monthly payment, extend the timeline, or increase your payment to finish faster. You can make these changes through the IRS website, by phone, or by mailing a new Form 9465.
The IRS may charge another setup fee if you modify your plan, though the fee is sometimes waived if you are lowering your payment due to hardship. If you are struggling to make payments, mention this when you contact the IRS; they have options for people facing financial difficulty, including temporarily reducing or suspending payments.
Other options if a payment plan does not work
If you cannot afford even a long-term payment plan, the IRS has other tools. A Currently Not Collectible status temporarily pauses collection while you face severe financial hardship. The debt remains, and interest and penalties keep accruing, but the IRS stops collection efforts. You can request this by calling 1-800-829-1040 or mailing Form 433-F (Collection Information Statement).
An Offer in Compromise lets you settle your debt for less than you owe, but only if you meet strict criteria — typically, your income and assets must be very low and you must prove you cannot pay the full amount even over time. This is rare and requires detailed financial documentation. You can explore whether you might may have access to through the IRS website or with a tax professional.
If you owe back taxes and have not filed recent returns, filing those returns first is usually necessary before setting up a payment plan. The IRS cannot create a plan for years you have not reported to them yet.
How to avoid defaulting on your plan
The most reliable way to stay on track is direct debit from your bank account. The payment comes out automatically, so you cannot forget. The setup fee is also lower ($31 instead of $225), which saves money upfront.
If you pay by check or money order, mark your calendar for the due date each month and send the payment early — at least five business days before the due date — to account for mail delays. Keep copies of your cancelled checks or money order receipts as proof of payment.
If your address changes, notify the IRS immediately so notices reach you. If you miss a notice and miss a payment without knowing, you could default your plan without realizing it. You can update your address through your IRS online account or by calling 1-800-829-1040.
Frequently Asked Questions
Can I set up a payment plan if I still owe for this year's taxes too?
Yes. You can include current-year taxes in your plan if you file your return on time or request an extension. However, the IRS prefers that you pay current-year taxes separately from back taxes. Discuss this with the IRS representative when you set up your plan; they can advise on the best approach for your situation.
What if I cannot afford the monthly payment the IRS suggests?
Call 1-800-829-1040 and explain your situation. The IRS can lower your monthly payment and extend your timeline, though this means paying more interest overall. If you are in severe hardship, ask about Currently Not Collectible status, which pauses collection temporarily while you recover financially.
Does setting up a payment plan stop the IRS from garnishing my wages or levying my bank account?
Once your plan is approved and you are making payments, the IRS typically stops collection actions like wage garnishment or bank levies. However, if you default on your plan by missing three payments, the IRS can resume collection. Stay current on your payments to keep these protections in place.
Can I pay off my plan early without a penalty?
Yes. You can pay more than your monthly amount or pay off the entire balance early without any penalty. In fact, paying early saves you money because you stop accruing interest sooner. There is no fee for paying ahead or finishing your plan early.
What if I disagree with the amount of back taxes the IRS says I owe?
Before setting up a payment plan, you can dispute the amount through the IRS appeals process. Contact the IRS or a tax professional to discuss your case. If you set up a plan first and later win an appeal, the IRS will adjust your plan to reflect the corrected amount owed.