How to Set Up a Payment Plan With the IRS

What an IRS payment plan does and who can use one

An IRS payment plan lets you pay your tax debt in monthly installments instead of all at once. The IRS calls this an "installment agreement." You set up the plan directly with the IRS, and they collect your payment each month by automatic withdrawal from your bank account or by check. The plan does not erase what you owe — you still pay the full amount plus interest and penalties — but it stops the IRS from taking more aggressive collection steps like seizing your bank account or wages while you are making regular payments.

You can set up a payment plan if you owe federal income tax and cannot pay the full amount by the tax deadline. There is no income limit or minimum debt amount, though the IRS has different types of plans depending on how much you owe. You do not need to wait until the IRS contacts you; you can start a plan on your own as soon as you know you will owe money.

Key Takeaways

• You can set up a payment plan yourself through IRS.gov, by phone at 1-800-829-1040, or by mail without waiting for the IRS to contact you first.
• The IRS charges a setup fee (usually $31 to $225 depending on your method) and interest on the unpaid balance each month, so paying faster saves you money.
• Short-term payment plans (120 days or less) have no setup fee, but long-term plans require automatic bank withdrawals and charge a monthly interest rate of about 0.5 percent.
• If you miss a payment, the plan can be cancelled and the IRS can resume collection actions, so set up automatic payments to avoid this.
• You must file all future tax returns on time and pay any new taxes in full while your payment plan is active, or the agreement ends.

The three types of IRS payment plans

The IRS offers three main payment plan structures, and which one you use depends on how much you owe and how quickly you can pay.

A short-term payment plan covers debts you can pay off in 120 days or less. There is no setup fee, and you can pay by check or automatic withdrawal. This plan is the cheapest option because you avoid the setup fee entirely.

A long-term installment agreement is for debts you need more than 120 days to pay. The IRS requires automatic bank withdrawals (ACH) for these plans. You pay a setup fee of $31 to $225 depending on whether you set it up online, by phone, or by mail. Interest accrues monthly at roughly 0.5 percent of your unpaid balance, plus penalties that were already added to your original bill.

A streamlined installment agreement is available if you owe $50,000 or less in combined taxes, penalties, and interest. You set it up online or by phone, it requires automatic bank withdrawals, and the setup fee is lower than a standard long-term plan. The IRS approves streamlined agreements more quickly because they do not require a financial review.

How to set up a payment plan

You have three ways to start a payment plan: online, by phone, or by mail. Online is fastest and requires no phone call.

Online through IRS.gov: Go to IRS.gov and search for "Online Payment Agreement." You will need your Social Security number, date of birth, and the tax year(s) you owe for. The system will ask how much you want to pay each month and when you want payments to start. You can set up automatic bank withdrawals right there and get approval in minutes. The setup fee is $31 if you choose automatic withdrawal.

By phone: Call the IRS at 1-800-829-1040 (Monday through Friday, 7 a.m. to 7 p.m. your local time). A representative will walk you through the same questions and set up automatic payments. The setup fee is $225 if you pay by phone, so this is the most expensive method.

By mail: Fill out Form 9465 (Installment Agreement Request) and mail it to the IRS address shown in your tax notice. Include a check or money order for the setup fee. This method takes longer — usually two to four weeks — because the IRS has to process the form manually. The setup fee is $225.

Before you contact the IRS, have your most recent tax return and a list of what you owe for each tax year. If you have not filed a return for the year you owe, you must file it before setting up a payment plan.

Setup fees, interest, and what the plan actually costs

The total cost of your payment plan includes three parts: the original tax you owe, the setup fee, and monthly interest on the unpaid balance.

The setup fee ranges from $31 to $225 depending on how you set up the plan. Online or automatic withdrawal costs $31. Phone costs $225. Mail costs $225. If you owe $25,000 or less and set up a streamlined agreement online, the fee is $31.

Interest is charged monthly on whatever balance remains unpaid. The IRS interest rate changes quarterly and is currently around 0.5 percent per month (roughly 6 percent per year), though this varies. Interest compounds, meaning you pay interest on the interest. The longer your payment plan stretches, the more interest you pay overall.

Penalties were already added to your bill when you received your notice. They do not increase while you are on a payment plan, but they do accrue interest just like the tax itself.

Example: If you owe $5,000 and set up a 24-month plan with a $31 setup fee and 0.5 percent monthly interest, your total payments will be roughly $5,600 to $5,700 by the time the plan ends. Paying faster — say, in 12 months — would cost you roughly $5,300 to $5,400. The difference is the interest you save.

What happens after you set up the plan

Once your payment plan is approved, the IRS will send you a confirmation letter showing your monthly payment amount, the due date, and the account number for your plan. Keep this letter. If you set up automatic bank withdrawals, the IRS will withdraw the payment on the date you chose each month.

You must make every payment on time. If you miss a payment, the IRS will send you a notice. If you miss two payments in a row, the plan can be cancelled and the IRS can resume collection actions like wage garnishment or bank levies. If your financial situation changes and you cannot afford the payment, contact the IRS before you miss a payment and ask to modify the plan.

While your payment plan is active, you must file all future tax returns on time and pay any new taxes in full. If you file late or do not pay a new tax bill, your payment plan will end and you will owe the full remaining balance immediately.

Modifying or ending your payment plan

If your monthly payment becomes unaffordable, you can ask the IRS to lower it or extend the plan. Call 1-800-829-1040 or log into your IRS account online to request a modification. The IRS will review your request, though they may ask for financial information to approve a lower payment.

If your situation improves and you want to pay off the plan early, you can do so without penalty. There is no prepayment fee. Contact the IRS to ask for the payoff amount, which includes any interest accrued up to the date you pay.

Your payment plan ends when you have paid the full amount owed. The IRS will send you a letter confirming that your account is satisfied.

What to do if you cannot afford any monthly payment

If you owe taxes but cannot afford even a small monthly payment, you have other options. You can request Currently Not Collectible (CNC) status, which temporarily pauses collection while you face financial hardship. Interest and penalties still accrue, but the IRS stops collection actions. CNC status lasts up to 120 days, and you can request it again if your situation does not improve.

You can also request an Offer in Compromise, which is a settlement where you pay less than the full amount owed if the IRS agrees you cannot pay the full debt. This is harder to get approved for and requires detailed financial paperwork, but it is an option if your income is very low or your debt is very large.

To explore these options, call 1-800-829-1040 or visit IRS.gov and search for "Currently Not Collectible" or "Offer in Compromise."

Frequently Asked Questions

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

No. You must file your return before the IRS will set up a payment plan. If you owe taxes, file your return as soon as you can, even if you cannot pay. Filing stops penalties from growing as quickly and lets you start a payment plan right away.

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, reducing what you owe. Your monthly payment amount stays the same unless you ask the IRS to change it. If your refund is large enough to pay off the plan, the IRS will do so and send you any remaining refund.

Can I change my payment due date after the plan starts?

Yes. Contact the IRS at 1-800-829-1040 or log into your IRS account online to request a different due date. The IRS usually approves date changes without requiring financial information, though they may limit how often you can change it.

Do I still owe penalties and interest while on a payment plan?

Yes. Penalties were already added to your bill when you received your notice and do not change. Interest continues to accrue monthly on your unpaid balance at the IRS interest rate, which changes quarterly. Both are included in your total debt.

What if I cannot make a payment one month?

Contact the IRS immediately before the payment is due. Explain your situation and ask if you can skip that month, make a smaller payment, or modify the plan. If you wait until after you miss the payment, the IRS may cancel your plan and start collection actions.