What an IRS payment plan does

An IRS payment plan lets you pay your tax debt over time instead of in one lump sum. The IRS calls this an installment agreement. When you set one up, you make regular monthly payments — usually by automatic bank withdrawal — until your balance is paid off. The IRS charges interest and a setup fee, but a payment plan stops the debt from growing as fast as it would if you ignored it.

You can set up a payment plan whether you owe a few hundred dollars or several thousand. The IRS has different types of plans depending on how much you owe and how quickly you can pay. Some people set up a plan and pay it off in a year or two. Others stretch payments over five years or longer.

Key Takeaways

  • You can set up a payment plan online through IRS.gov, by phone at 1-800-829-1040, or by mailing Form 9465 to the IRS address on your tax notice.
  • The IRS charges a setup fee (usually $31 to $225 depending on your method) and continues charging interest on the unpaid balance each month.
  • Short-term plans under 120 days have no setup fee, but most people use longer plans that do charge one.
  • Automatic bank withdrawal (called direct debit) is the cheapest setup option and the IRS prefers it because payments are more reliable.
  • You need your Social Security number, the amount you owe, and a bank account or credit card ready before you start.

The three ways to set up a plan

The fastest way is online through IRS.gov. Go to the IRS website, find the payment plan section, and you can set up a plan in about 15 minutes if you have your tax notice handy. You will need your Social Security number, the tax year you owe for, and either a bank account or credit card. The IRS will tell you when ready whether your plan is approved.

You can also call the IRS at 1-800-829-1040. A representative will walk you through the process and answer questions about your specific situation. Wait times are usually shorter early in the morning or late in the week. Have your notice and bank information ready before you call.

The third option is mailing Form 9465 (Installment Agreement Request) to the IRS address printed on your tax notice. This takes longer — usually two to four weeks — but some people prefer it if they do not have internet access or want a paper record. You will still need to include your bank account information or credit card details on the form.

Setup fees and interest you will pay

The IRS charges a setup fee when you create a payment plan. The amount depends on how you set it up. If you use automatic bank withdrawal (direct debit), the fee is usually $31. If you pay by credit card or debit card, the fee is higher — typically $225 — because the card processor charges the IRS a percentage. If you set up a plan by phone or mail, the fee is usually $225 as well.

There is one exception: if your plan is for less than 120 days, there is no setup fee at all. But most people need longer than 120 days to pay, so this applies to relatively few situations.

On top of the setup fee, the IRS charges interest on whatever balance remains unpaid. The interest rate changes quarterly and is tied to the federal short-term rate. As of early 2024, the rate is around 8 percent per year, but it varies. Interest compounds daily, meaning you pay interest on the interest. The longer your plan stretches, the more interest you will pay overall.

How much you need to pay each month

The monthly payment depends on how much you owe and how long you want the plan to last. If you owe $5,000 and want to pay it off in 24 months, your monthly payment will be roughly $208 before interest and fees are added. If you stretch it to 60 months, the monthly payment drops to around $83, but you pay more interest overall.

When you set up your plan online or by phone, the IRS will show you payment options and let you choose the length that works for your budget. You can usually pick a plan lasting anywhere from a few months to six years, depending on how much you owe. The IRS has limits — for example, if you owe more than $50,000, you may be required to use a longer payment period — but most people have flexibility.

Your monthly payment comes out of your bank account automatically on a date you choose, usually between the 1st and the 28th of each month. You can change the payment date later if your paycheck timing shifts.

What happens after you set up a plan

Once your plan is approved, you will receive a notice from the IRS confirming the terms — the monthly payment amount, the due date, and the expected payoff date. Keep this notice. If you have questions later or need to change your payment date, you will reference it.

Your first payment usually comes out 30 days after approval. The IRS will continue to charge interest and penalties on your balance until it is paid in full, so your last payment may be slightly higher or lower than the others depending on rounding.

If you miss a payment, the IRS will send you a notice. One missed payment does not automatically cancel your plan, but if you miss payments repeatedly, the IRS can terminate the agreement and pursue other collection methods. If your situation changes — you lose your job, face a medical emergency, or your income drops — you can contact the IRS and ask to modify your plan to a lower monthly payment.

When a payment plan might not be your best option

A payment plan is useful if you genuinely cannot pay your full tax debt right now. But it is not free — you are paying interest and fees on top of what you already owe. If you have savings, a tax refund coming, or access to a loan at a lower interest rate, paying the debt faster or in full will cost you less money overall.

If your tax debt is very large (over $50,000) or your income is very low, you may want to explore other options before committing to a long payment plan. The IRS has programs like Currently Not Collectible status, which pauses collection efforts temporarily while you get back on your feet, and Offer in Compromise, which lets you settle for less than you owe if you meet certain conditions. These are harder to set up than a payment plan, but they may save you money or stress if your situation is severe.

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 first so the IRS knows what you owe. Once you file, you can set up a plan when ready. If you have not filed in several years, contact a tax professional or the IRS to get caught up before setting up a plan.

What if I pay off my plan early?

You can pay off your balance at any time without penalty. There is no early payoff fee. Paying early saves you interest because interest stops accruing once the balance reaches zero. You can make extra payments whenever you have the money.

Will a payment plan hurt my credit score?

The IRS does not report payment plans to credit bureaus, so setting up a plan itself does not damage your credit. However, if you had a tax lien filed against you before setting up the plan, that lien will stay on your credit report for seven years even after you pay off the debt. A lien is different from a payment plan — it happens when the IRS has already taken collection action.

Can I change my payment amount or due date after I set up a plan?

Yes. You can modify your plan online through IRS.gov, by calling 1-800-829-1040, or by mailing a request to the IRS. Changes usually take effect within 30 days. If your income drops and you need a lower payment, contact the IRS as soon as possible rather than missing payments.

What if the IRS garnishes my wages or bank account while I have a payment plan?

Once your payment plan is approved and you are making payments on time, the IRS should not pursue other collection actions like wage garnishment or bank levies. If collection action has already started, setting up a payment plan may stop it, but contact the IRS when ready to confirm your plan is in effect.