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

An IRS payment plan is an agreement that lets you pay your tax debt over time instead of in one lump sum. The IRS calls these "installment agreements." If you owe federal income tax and cannot pay it all at once, you can request a plan that spreads your payments across months or years. The IRS has several types of plans, each with different rules about how long you have to pay and what fees you'll owe.

You can set up a payment plan whether you filed your tax return on time or not, and whether the IRS has already sent you a bill. The sooner you contact the IRS after you know you owe, the more options you typically have. If you wait until the IRS has already filed a lien or started collection action, your choices narrow.

The IRS does not require you to use a tax professional or third-party service to set up a plan. You can do it yourself by phone, mail, or online through the IRS website. However, some people choose to work with a tax professional or enrolled agent, particularly if their situation is complicated or they have other tax years involved.

Key Takeaways

  • The IRS offers four main types of payment plans: short-term, long-term, streamlined, and partial-pay, each with different monthly payments and total timeframes.
  • Setup fees range from $31 to $225 depending on the plan type and whether you set it up online or by phone, and interest and penalties continue to accrue on your unpaid balance.
  • You can request a plan online through IRS.gov, by phone at 1-800-829-1040, or by mail using Form 9465, and the IRS typically responds within 30 days.
  • Missing a payment or failing to file future returns can cause the IRS to cancel your plan and pursue collection action, including wage garnishment or bank levy.
  • If your financial situation changes significantly, you can request a modification to lower your monthly payment or extend your plan.

The four types of IRS payment plans

The short-term payment plan is for people who can pay their debt within 120 days. There is no setup fee if you set it up online. You make monthly payments that add up to your full balance plus interest and penalties. This plan is the cheapest option because you pay the least interest overall.

The long-term installment agreement is for people who need more than 120 days to pay. Monthly payments are typically $25 or more, and you can take up to 72 months (six years) to pay, though the IRS may allow longer in some cases. The setup fee is $31 if you set it up online, or $225 if you set it up by phone or mail. Interest and penalties continue to accrue on your unpaid balance each month, so the longer you take to pay, the more you owe overall.

The streamlined installment agreement is a simplified version of the long-term plan for people who owe $50,000 or less in combined tax, penalties, and interest. You do not have to provide detailed financial information, and the setup fee is $31 online or $225 by phone or mail. The IRS typically approves streamlined agreements faster than other types.

The partial-pay installment agreement is for people whose financial situation means they cannot pay their full tax debt, even over time. You make monthly payments for up to six years, but at the end of that period, any remaining balance may be forgiven — though the IRS will review your finances again before deciding. This plan requires you to submit detailed financial information and is less common than the other three.

How to request a payment plan

The fastest way to set up a plan is online through the IRS website at IRS.gov. Go to the "Online Payment Agreement" tool, enter your Social Security number or employer identification number, and answer questions about your tax debt and income. The system will show you available plans and let you choose monthly payment amounts. You will receive confirmation when ready and can print it for your records.

You can also call the IRS at 1-800-829-1040 to request a plan by phone. Have your Social Security number, tax return information, and details about your income and expenses ready. The IRS representative will walk you through the options and set up the plan over the phone. This method takes longer than online but may be necessary if you have complications or need to discuss your situation.

If you prefer to use mail, read Form 9465 (Installment Agreement Request) from IRS.gov, fill it out, and send it to the address listed on your tax bill. Include a check or money order for the setup fee if you want to pay it when ready, or the IRS will add it to your first payment. The IRS typically responds to mailed requests within 30 days.

Before you request a plan, make sure you have filed all required tax returns for the past six years. If you have not filed recent returns, the IRS will not set up a plan until you do. If you are self-employed or have other income sources, gather documentation of your current income and expenses, as the IRS may ask for this information depending on the plan type.

Setup fees and how interest and penalties work

The setup fee is a one-time charge to create your payment plan. If you set up a short-term plan online, there is no fee. For all other plans, the fee is $31 if you set it up online, or $225 if you set it up by phone or mail. Some people choose to pay the fee upfront; others ask the IRS to add it to their first payment.

Interest and penalties do not stop when you enter a payment plan. The IRS charges interest on your unpaid balance at a rate set by law, which changes quarterly. As of early 2024, the rate is 8 percent per year, but this varies. You also continue to owe any penalties the IRS assessed, such as the failure-to-file penalty or accuracy-related penalty. Both interest and penalties accrue on your unpaid balance each month, which means your total debt grows even as you make payments.

This is why a short-term plan is cheaper than a long-term plan: the less time you take to pay, the less interest accumulates. However, if you cannot afford a short-term plan, a long-term plan is still better than not paying at all, because it stops the IRS from taking collection action like wage garnishment or bank levy.

What happens if you miss a payment or your situation changes

If you miss a payment, the IRS will send you a notice. You typically have 30 days to make the payment before the IRS cancels your plan. If your plan is cancelled, the IRS can resume collection action, including filing a lien, garnishing your wages, or levying your bank account. Contact the IRS when ready if you know you will miss a payment; sometimes they will grant a short extension or allow you to catch up over the next few months.

You must also file your tax return on time each year while you are on a payment plan. If you do not file a required return, the IRS will cancel your plan. This applies even if you are owed a refund — you still have to file to stay in compliance.

If your financial situation improves and you can pay faster, you can pay off your plan early without penalty. If your situation worsens and you cannot afford your monthly payment, you can request a modification. Call the IRS or use the online tool to request a lower payment or longer timeframe. The IRS will review your current income and expenses and may approve a change.

Payment methods and how to track your balance

Once your plan is approved, you can make payments by check, money order, electronic bank transfer, credit or debit card, or payroll deduction. Payroll deduction is the most reliable method because your employer automatically sends the payment to the IRS each pay period, and you do not have to remember to pay. To set up payroll deduction, you will need to provide your employer's information and sign a Form 2159.

You can track your payment plan balance and payment history online through the IRS website using your login credentials. You can also call 1-800-829-1040 to speak with an IRS representative who can tell you your current balance, remaining payments, and payment history. Keep copies of your payment confirmations and receipts in case you need to prove you made a payment.

The IRS will send you a bill each month showing your payment due date and amount. Some people set up automatic payments through their bank so they never miss a due date. If you change your address, update it with the IRS when ready so you do not miss notices about your plan.

When a payment plan might not be your best option

A payment plan is not always the right choice. If you owe a small amount and can borrow money from family or friends, paying in full when ready avoids interest and penalties. If you are facing serious financial hardship and cannot afford even a low monthly payment, you might explore an Offer in Compromise, which is a settlement where the IRS accepts less than you owe. However, Offers in Compromise are difficult to obtain and require detailed financial documentation.

If you are unable to work due to illness or disability and have no income, you may be able to request Currently Not Collectible status, which temporarily pauses collection action while you recover financially. This does not forgive your debt, but it stops the IRS from garnishing wages or levying accounts. Interest and penalties still accrue, but you are not required to make payments.

If you have multiple years of unpaid taxes, the IRS may require you to file all missing returns before setting up a plan. If you have not filed in several years, consider working with a tax professional to get caught up, because the process can be complex and mistakes can delay your plan approval.

Frequently Asked Questions

Can the IRS reject my payment plan request?

Yes. The IRS can reject your request if you have not filed all required tax returns, if you are not current on your estimated tax payments for the current year, or if you have defaulted on a previous payment plan. If your request is rejected, the IRS will explain why in a written notice and tell you what you need to do to reapply.

Will a payment plan stop the IRS from garnishing my wages or levying my bank account?

Yes, as long as your plan is active and you make your payments on time. Once the IRS approves your plan, they stop collection action. However, if you miss a payment and the plan is cancelled, they can resume garnishment or levy. If the IRS has already garnished your wages before you set up a plan, the garnishment may continue for a short time while the system updates, but it should stop within a few pay periods.

What if I owe taxes for multiple years?

You can include all years of unpaid taxes in a single payment plan. The IRS will combine your balances and calculate one monthly payment. However, you must have filed a return for each year you owe, even if you did not pay. If you have not filed returns for some years, you will need to file them before the IRS will set up a plan.

Can I change my payment plan after it is approved?

Yes. If your income changes or you face unexpected expenses, you can request a modification to lower your monthly payment or extend your plan. Contact the IRS by phone or through the online tool to request a change. The IRS will review your current financial situation and may approve a new arrangement.

Does a payment plan affect my credit score?

A payment plan itself does not appear on your credit report. However, if the IRS filed a tax lien before you set up the plan, that lien may appear on your credit report and affect your score. Once you pay off your tax debt, you can request that the IRS release the lien, which should improve your credit over time.