How IRS Installment Plans Work and What They Cost
What an IRS installment plan is and who can set one up
An IRS installment plan lets you pay your tax bill in monthly chunks instead of one lump sum. The IRS calls this an "agreement"—you owe the same total amount, but you spread the payments over time. The IRS will set up the plan, collect the payments, and charge you interest and a setup fee on top of what you already owe.
You can request an installment plan if you owe federal income tax and cannot pay it all at once. There is no income limit, no credit check, and no requirement to prove hardship—the IRS will work with almost anyone who asks. The catch is that interest and fees keep growing until the debt is paid off, so the longer your plan runs, the more you pay in total.
The IRS offers two main types: a short-term agreement (you pay within 180 days) and a long-term agreement (you pay over several years). Which one you get depends on how much you owe and how much you can pay each month.
Key Takeaways
- An installment plan spreads your tax bill into monthly payments, but interest and fees continue to accrue until the full amount is paid.
- You can set up a plan online through IRS.gov, by phone at 1-800-829-1040, or by mail using Form 9465, and the IRS will tell you the monthly amount.
- Short-term plans (under 180 days) have no setup fee; long-term plans charge a fee that ranges from $31 to $225 depending on how you set it up.
- If you miss a payment or fall behind on other taxes, the IRS can cancel your plan and demand the full balance immediately.
- Interest accrues daily at a rate set by the IRS each quarter, and you also pay a failure-to-pay penalty of 0.5% per month on any unpaid balance.
How much the plan costs beyond your tax bill
When you set up an installment plan, you pay three things: the original tax you owe, interest, and penalties. The IRS does not waive any of these.
Interest is charged daily on your unpaid balance. The rate changes every three months and is set by the IRS based on the federal short-term rate plus 3%. As of early 2024, the rate hovers around 8% annually, but check IRS.gov for the current quarter's rate before you commit. If your plan runs for three years, you will pay significantly more in interest alone than if you paid the full amount upfront.
You also owe a failure-to-pay penalty of 0.5% per month on any unpaid tax. This penalty stacks on top of interest and keeps growing until the debt is gone. If you set up a plan and then miss a payment, the penalty can increase to 1% per month.
The setup fee depends on how you set up the plan. If you set it up online or by phone, the fee is $31 to $225 depending on your income and the plan type. If you mail in Form 9465, the fee is usually $31 to $225 as well. Short-term plans (paid off in under 180 days) have no setup fee.
The three ways to set up a plan
Online through IRS.gov is the fastest route if you have a Social Security number, a filing status, and know your tax year and the amount you owe. Go to IRS.gov, search for "Online Payment Agreement," and follow the prompts. You will see the monthly payment amount, the setup fee, and the total interest before you commit. The plan takes effect within a few days. This method works for most people and costs $31 to $225 depending on income.
By phone at 1-800-829-1040 takes longer but works if you do not have internet access or prefer to speak to someone. Have your Social Security number, filing status, tax year, and the amount owed ready. The IRS representative will calculate your monthly payment and explain the fees. Setup takes a few days after the call. This method also costs $31 to $225.
By mail using Form 9465 is the slowest option but works if you cannot use the phone or internet. Fill out the form, include a copy of your tax return, and mail it to the IRS address listed in the form instructions. Processing takes several weeks. The setup fee is the same as the other methods. If you cannot afford the setup fee, you can request a fee waiver on the form, though the IRS rarely grants them.
What happens after you set up the plan
Once your plan is approved, the IRS will send you a notice with your monthly payment amount, due date, and payment method. You can pay by automatic bank withdrawal (ACH), credit or debit card, check, or money order. Automatic withdrawal is the cheapest option and the easiest way to avoid missing a payment.
Your monthly payment is calculated so that you pay off the full balance—including interest and penalties—by the end of the plan term. If you owe $5,000 and set up a 60-month plan, your payment will be higher than $5,000 ÷ 60 because interest is added each month. The IRS will show you the exact amount before you agree.
If your financial situation improves, you can pay more than the required monthly amount at any time without penalty. Extra payments go straight to the principal and reduce the total interest you pay. You can also request to shorten the plan term if you want to pay it off faster.
What breaks the plan and what happens then
The IRS can cancel your installment plan if you miss a payment by more than 30 days, if you owe new taxes while the plan is active, or if you fail to file a required tax return. When the plan is cancelled, the IRS will send you a notice demanding the full remaining balance immediately. You then have a limited time to pay or request a new plan.
If you miss a payment but catch it within 30 days, contact the IRS right away. You can usually get the plan reinstated if you pay the missed amount and any late fees. The IRS is more flexible about one missed payment than about a pattern of missed payments.
If you file taxes for a new year while your plan is active and you owe additional tax, the IRS will add that new debt to your existing plan or cancel the plan and demand both amounts. To avoid this, try to adjust your withholding or make estimated tax payments so you do not owe again next year.
Alternatives if an installment plan does not work
If the monthly payment is too high or the interest is too steep, you have other options. A Currently Not Collectible status temporarily pauses collection while you face financial hardship. You do not make payments, but interest and penalties keep accruing. Once your situation improves, the IRS will resume collection. This is useful if you are unemployed or facing a temporary crisis.
An Offer in Compromise lets you settle your tax debt for less than you owe, but only if the IRS believes you cannot pay the full amount even over time. The process is lengthy and the IRS approves only a small percentage of requests. You must prove your income, expenses, and assets in detail.
If you owe less than $10,000 and your circumstances have changed since you filed, you can request an abatement of penalties (though not interest). The IRS may reduce or remove failure-to-pay or failure-to-file penalties if you have a clean filing history and a reasonable cause for the late payment.
Frequently Asked Questions
Can I set up an installment plan if I have not filed my tax return yet?
No. You must file your return first so the IRS knows how much you owe. Once you file, you can request a plan immediately. If you are behind on filing, contact a tax professional or the IRS to file past returns before setting up a payment plan.
What if I cannot afford the monthly payment the IRS calculated?
Contact the IRS and request a lower payment amount. The IRS can extend the plan term to reduce the monthly cost, though this means paying more interest overall. You can also request Currently Not Collectible status if you are facing severe hardship and cannot pay anything right now.
Do I still owe interest if I set up an installment plan?
Yes. Interest accrues daily on your unpaid balance for the entire length of the plan. The only way to stop interest is to pay the full balance in one lump sum. This is why paying extra toward the principal each month, if you can, saves you money in the long run.
Can I cancel my installment plan if I change my mind?
Yes. You can pay off the remaining balance at any time without penalty. Contact the IRS to find out the exact payoff amount, which includes all accrued interest and penalties through the date you plan to pay. There is no fee to cancel early.
What happens to my installment plan if I move to a different state?
Your plan stays in effect. The IRS does not tie installment plans to a specific state. Continue making your monthly payments as scheduled. If you change your address, update it with the IRS so you receive notices and billing statements at the correct location.