What a tax payment plan does and who can use one

A tax payment plan lets you pay what you owe to the IRS in monthly installments instead of a lump sum. The IRS calls this an "installment agreement." You set up the plan directly with the IRS, agree on a monthly payment amount, and the IRS withdraws that amount from your bank account on a date you choose each month until the debt is paid off.

You can set up a payment plan if you owe federal income tax and cannot pay the full amount right away. The IRS does not require you to prove hardship — you straightforward need to owe money and be willing to make regular monthly payments. The plan covers the tax itself plus any penalties and interest that have already been added to your bill.

The IRS charges a setup fee (typically $31 to $225, depending on how you set it up) and adds interest to your remaining balance each month. Even so, a payment plan stops the IRS from taking more aggressive collection actions like wage garnishment or bank levies while you are making payments on time.

Key Takeaways

  • You can set up a payment plan online through IRS.gov, by phone at 1-800-829-1040, or by mail using Form 9465, and the setup fee ranges from $31 to $225 depending on your method.
  • The IRS withdraws your monthly payment directly from your bank account on a date you choose, and you must keep making payments even if you receive a refund in future years.
  • Interest and penalties continue to accrue on your unpaid balance, so the longer your plan runs, the more you will pay in total.
  • If you miss a payment or fall behind on other tax obligations, the IRS can cancel your plan and resume collection action.

Setting up a payment plan online or by phone

The fastest way to set up a payment plan is through the IRS website at IRS.gov. Log in to your IRS account (you may need to create one using your Social Security number and filing information), go to the payment plan section, and follow the prompts. The online setup fee is $31 if you choose automatic bank withdrawal, which is what the IRS prefers. The whole process takes about 15 minutes.

If you do not want to set up an account online, you can call the IRS at 1-800-829-1040 during business hours (Monday through Friday, 7 a.m. to 7 p.m. your local time). A representative will walk you through the plan options, calculate a monthly payment based on what you owe and how long you want to pay, and set up the withdrawal from your bank account. The phone setup fee is $225 if you do not have an IRS account, or $31 if you do.

Have your tax return and bank account information ready before you call or log in. You will need to provide your routing number and account number so the IRS can set up automatic withdrawals. The IRS will confirm your plan in writing within two weeks.

Choosing a monthly payment amount and payment date

When you set up your plan, you tell the IRS how much you want to pay each month. There is no minimum monthly payment set in stone — the IRS will work with you on an amount you can afford. However, the longer you stretch out the payments, the more interest you will pay on top of the original debt.

For example, if you owe $5,000 and pay $100 per month, your plan will run about five years and you will pay several hundred dollars in interest. If you pay $200 per month, the plan ends in roughly two and a half years with less interest added. The IRS has online calculators that show you the total cost at different payment levels.

You choose the date each month when the payment comes out of your bank account — typically the 1st, 15th, or another date that matches your payday. The IRS will withdraw that amount automatically on the same date every month. If that date falls on a weekend or holiday, the withdrawal happens on the next business day.

What happens if you miss a payment or your situation changes

If you miss a payment, the IRS will send you a notice. You have 30 days to make the missed payment before the IRS cancels your plan. Once the plan is cancelled, the full remaining balance becomes due when ready and the IRS can resume collection actions like wage garnishment or bank levies.

If your financial situation improves and you want to pay off the plan early, you can do so without penalty. Contact the IRS to find out your payoff amount (which includes any remaining interest) and make a lump-sum payment. If your situation gets worse and you cannot afford your monthly payment, you can request a modification — the IRS will lower your payment amount and extend your plan, though this means paying more interest overall.

If you receive a tax refund in a future year while your payment plan is active, the IRS will automatically explore that refund to your remaining balance instead of sending it to you. This speeds up your payoff but means you will not receive that refund money.

Understanding the costs: fees, interest, and penalties

Setting up a payment plan costs money upfront. The setup fee is $31 if you use online or phone setup with automatic bank withdrawal, or $225 if you call without an IRS account. Some payment plan types have different fees — for instance, a short-term extension (paying within 120 days) costs nothing, but most people need longer than that.

Beyond the setup fee, the IRS charges interest on your unpaid balance. The interest rate changes quarterly and is tied to the federal short-term rate plus 3 percent. As of early 2024, this rate is roughly 8 to 9 percent per year, though it varies. Interest compounds daily, so the longer your plan runs, the more interest you pay.

Penalties also continue to accrue. If you were late filing your return, a failure-to-file penalty applies. If you were late paying, a failure-to-pay penalty applies. These penalties are a percentage of what you owe and continue to grow until your balance is paid in full. The payment plan itself does not stop penalties or interest — it only lets you pay in installments instead of all at once.

Setting up a payment plan by mail

If you prefer not to use the phone or internet, you can set up a payment plan by mail using Form 9465 (Installment Agreement Request). You fill out the form, attach it to your tax return or send it separately to the IRS address listed in your tax notice, and mail it in.

The IRS will process your form and send you a confirmation letter within 30 days. This method is slower than online or phone setup — it can take 4 to 6 weeks to hear back — but it works if you do not have internet access or prefer a paper trail. The setup fee is the same as phone setup ($225 without an account, $31 with one).

You can read Form 9465 from IRS.gov or request it by calling 1-800-829-3676. The form asks for your name, Social Security number, the tax year you owe for, how much you owe, and how much you want to pay each month. If you do not know your exact balance, the IRS notice you received will have that information.

What to do if the IRS rejects your payment plan request

The IRS can reject a payment plan request if you owe more than $50,000 (though this limit sometimes changes), if you have not filed all required tax returns, or if you are not current on other tax obligations. If your request is rejected, the IRS will send you a letter explaining why.

If you owe more than $50,000, you may be able to set up a plan anyway by requesting a hearing or by working with a tax professional to negotiate directly with the IRS. If you have not filed all your returns, file them first — the IRS will not set up a plan until you are current. If you owe back taxes from multiple years, you can set up one plan that covers all of them.

If your request is rejected and you believe the IRS made a mistake, you can appeal. The IRS will send you information about how to request an appeal in the rejection letter. You have 30 days from the date of the letter to request one.

Frequently Asked Questions

Can I set up a payment plan if I owe penalties and interest, not just the tax itself?

Yes. Your payment plan covers the original tax plus all penalties and interest that have been added to your account. You cannot separate them — the monthly payment goes toward the total amount owed. Interest and penalties continue to accrue on the unpaid balance each month.

What happens to my payment plan if I get audited or owe taxes again next year?

Your existing payment plan covers only the tax year it was set up for. If you owe taxes in a new year, you can add that debt to your existing plan or set up a separate one. If you are audited and the IRS finds you owe more for a year you already have a plan for, the IRS will adjust your plan to include the additional amount.

Can I change my monthly payment amount after the plan starts?

Yes. Contact the IRS by phone at 1-800-829-1040 or through your IRS account online to request a modification. You can lower your payment (which extends your plan and increases total interest) or raise it (which shortens your plan). The IRS will send you a new agreement in writing.

What if I cannot afford to pay anything right now?

If you have no income or your expenses exceed your income, you may be able to request a temporary delay called "currently not collectible" status. This pauses collection action for a time, though interest and penalties still accrue. Contact the IRS to discuss your situation — they have options beyond a standard payment plan.

Does setting up a payment plan hurt my credit score?

A payment plan itself does not appear on your credit report. However, the original tax debt may have been reported to credit bureaus before you set up the plan, and that report can affect your score. Making on-time payments on your plan does not improve your credit, but missing payments can make things worse.