Yes, the IRS offers payment plans for tax debt
If you owe the IRS and cannot pay in full by the tax deadline, you can set up a payment plan (called an installment agreement) that lets you pay over time. The IRS charges interest and penalties on what you owe, and those charges keep growing until the debt is paid off, but a payment plan stops the most aggressive collection actions—like wage garnishment or bank levy—while you make regular payments.
The IRS has two main types of payment plans: short-term (120 days or less) and long-term (more than 120 days). Which one you use depends on how much you owe and how quickly you can pay. You can set up a plan online, by phone, or through a tax professional, and the process usually takes a few days to a few weeks.
Key Takeaways
- The IRS offers installment agreements that let you pay tax debt over time instead of in one lump sum, with interest and penalties added to your balance.
- Short-term plans cover 120 days or less and have lower setup fees; long-term plans can stretch payments over several years and require a monthly payment amount you can afford.
- You can set up a plan online through IRS.gov, by calling the IRS at 1-800-829-1040, or by working with a tax professional or enrolled agent.
- The IRS will resume collection actions (wage garnishment, bank levy, property seizure) if you miss a payment or fail to file future tax returns while on a plan.
- Interest and penalties continue to accrue on your balance while you pay, so paying faster reduces the total amount you owe.
Short-term payment plans: 120 days or less
A short-term plan is the simplest route if you owe less and can pay within four months. You do not need to make a formal agreement or pay a setup fee. You simply contact the IRS, tell them when you can pay the full amount, and they note it in your account. The IRS will not pursue collection actions during this window as long as you pay by the date you commit to.
This option works best if you are waiting for a bonus, a tax refund from a prior year, or a settlement check. There is no monthly payment schedule—you pay the lump sum on or before the deadline you agree to. If you miss that deadline, the IRS will resume collection efforts immediately.
Long-term payment plans: monthly payments over time
A long-term installment agreement is what most people think of as a payment plan. You agree to pay a fixed amount each month until the debt is cleared. The IRS will work with you to set a payment amount based on what you can afford, though they will also consider how much you owe and how long you want to take to pay it off.
The IRS charges a setup fee for long-term plans. The fee varies depending on how you set up the plan: online setup costs less than phone or mail setup. Once the plan is in place, you make monthly payments by direct debit from your bank account, by credit or debit card, or by check or money order. The IRS sends you a notice showing your payment amount, due date, and the expected payoff date.
Long-term plans can last anywhere from a few years to up to 72 months (six years), depending on how much you owe and what monthly payment you can manage. The longer the plan, the more interest and penalties you will pay overall, because those charges continue to accrue on your unpaid balance each month.
How to set up a payment plan with the IRS
You have three main ways to start a payment plan: online, by phone, or through a tax professional. Online is usually the fastest and cheapest option if you know how much you owe and can commit to a specific monthly payment.
To set up online, go to IRS.gov and use the Online Payment Agreement tool. You will need your Social Security number or Individual Taxpayer Identification Number, your date of birth, your filing status, and the tax year(s) you owe for. The tool will show you the amount owed, calculate the setup fee, and let you choose your monthly payment date. You can complete the entire process in 10 to 15 minutes, and the agreement usually takes effect within one business day.
If you prefer to call, dial 1-800-829-1040 during business hours. A representative will ask the same information and help you choose a payment amount. Phone setup takes longer and costs more in fees, but it may be necessary if you have complications—like owing for multiple years or having a prior agreement that was defaulted.
A tax professional, enrolled agent, or CPA can also set up a plan on your behalf using a power of attorney form. This is useful if your situation is complex or if you want someone else handling the IRS contact.
Interest, penalties, and what happens to your balance
Interest and penalties do not stop when you enter a payment plan. The IRS charges interest on unpaid tax at a rate that changes quarterly (currently around 8 percent annually, but this varies). You also owe a failure-to-pay penalty of 0.5 percent of the unpaid tax per month, which accrues until the debt is paid off or until the penalty reaches 25 percent of the original tax owed.
This means your monthly payment covers both the original tax and a portion of the interest and penalties. If your payment is very small, most of it may go toward interest and penalties, and the original tax balance shrinks slowly. The faster you pay, the less total interest you owe.
You can pay more than your required monthly amount at any time without penalty, and doing so will reduce the total interest you pay and shorten the plan. Some people make extra payments when they have bonus income or a tax refund, which speeds up the payoff.
What breaks a payment plan and what happens next
The IRS will default your agreement if you miss a payment by more than 30 days or if you fail to file a tax return for any year while the plan is active. If either happens, the IRS sends you a notice of default and resumes collection actions. This can include wage garnishment (the IRS orders your employer to withhold a portion of your paycheck), bank levy (the IRS takes money directly from your bank account), or property seizure.
If you miss a payment but catch it within 30 days, contact the IRS immediately. You may be able to reinstate the plan without losing it. If you are going to miss a payment, call before the due date and explain your situation—the IRS can sometimes adjust your payment amount or extend the plan if your circumstances have changed.
You must also continue to file your tax return on time each year, even if you are on a payment plan for a prior year's debt. If you do not file, the IRS will default the agreement.
Payment plan costs and fees
The IRS charges a setup fee for long-term installment agreements. The amount depends on how you set up the plan:
| Setup Method | Setup Fee |
|---|---|
| Online (IRS.gov) | $31 to $225, depending on your monthly payment amount |
| Phone or mail | $31 to $225, depending on your monthly payment amount |
| Automatic bank debit (direct debit) | Lower fee than other methods |
Short-term plans (120 days or less) do not have a setup fee. The only cost is the interest and penalties that accrue on your unpaid balance.
If you set up automatic payments from your bank account (direct debit), the IRS charges a lower setup fee than if you pay by check, money order, or credit card. This is the cheapest way to set up a long-term plan.
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 you can set up a payment plan. The IRS needs to know exactly how much you owe, which requires a filed return. If you have not filed, contact a tax professional or the IRS to file first, then set up the plan.
What if I cannot afford the monthly payment the IRS suggests?
Tell the IRS your actual financial situation. They can lower the monthly payment and extend the plan length, though this means more interest over time. You can also request a Currently Not Collectible status if you have no income or assets, which pauses collection actions temporarily while you remain on the IRS's books.
Will a payment plan stop wage garnishment or bank levy?
If you already have a wage garnishment or levy in place, setting up a payment plan will stop it. The IRS releases the garnishment or levy once the plan is approved. If you do not yet have one but are at risk, setting up a plan quickly can prevent it from happening.
Can I pay off my plan early without penalty?
Yes. You can pay more than your required monthly payment or pay off the entire balance at any time without penalty. Paying early reduces the total interest you owe and closes the agreement faster.
What happens to my payment plan if I get a tax refund?
The IRS will automatically apply your refund to your payment plan balance. This reduces what you owe and can shorten the plan. You cannot opt out of this—it is automatic for anyone with an active installment agreement.