The IRS lets you pay your tax bill in monthly installments instead of all at once
If you owe the IRS money and cannot pay it in full by the tax deadline, you can set up a payment plan (also called an installment agreement) to spread the debt across months or years. The IRS charges interest and penalties on top of what you owe, and those continue to grow while you pay, but a plan lets you avoid wage garnishment, bank levies, and liens on your property — as long as you make each payment on time.
The IRS offers two main types of plans: a short-term plan for smaller debts you can clear in 180 days or less, and a long-term installment agreement for anything larger. Which one you get depends on how much you owe and how you set it up. Most people set up plans online through IRS.gov or by phone, though you can also do it by mail.
Key Takeaways
- Short-term plans (120 days or fewer) cost nothing to set up; long-term plans charge a setup fee that ranges from $31 to $225 depending on how you enroll.
- Monthly payments are your choice within reason — you decide the amount, but it must be enough to pay off the full balance (including interest and penalties) before the plan expires.
- Interest and penalties keep accruing on your unpaid balance every month, so the longer your plan runs, the more you pay in total.
- Missing even one payment can end your plan and trigger collection action, including wage garnishment and bank levies.
- You can set up a plan online in minutes, by phone, or through a tax professional, and the IRS will tell you immediately whether you may have access to.
Short-term plans: 120 days or less with no setup fee
If you owe less than $100,000 and can pay it off within 120 days, you can use a short-term payment plan. There is no setup fee. You contact the IRS, tell them how much you want to pay each month, and they confirm the plan. The monthly amount must be high enough that your balance hits zero by day 120, but you control the exact figure.
Short-term plans are the cheapest route because the IRS charges no fee to set one up. However, interest and penalties still accrue on your unpaid balance each month, so even though the plan is short, you will still pay more than the original bill. If you think you can pay the full amount within a few months, this is worth exploring first.
Long-term installment agreements: months or years, with a setup fee
A long-term installment agreement is for debts you cannot clear in 120 days. These plans can run for years, and the IRS charges a setup fee upfront. The fee depends on how you enroll: if you set it up online or by phone using direct debit (automatic bank withdrawal), the fee is $31. If you enroll by phone or mail without direct debit, the fee is $225. If you use a tax professional or payment processor to set it up, the fee is $225.
Your monthly payment is your choice, but it must be enough to pay off the entire balance — including all interest and penalties — by the time the plan expires. The IRS will calculate a suggested payment when you enroll, but you can propose a lower amount if you cannot afford it. The longer the plan runs, the more interest and penalties you pay, so a higher monthly payment saves you money overall.
Long-term plans can last anywhere from a few years to as long as 72 months (six years) for balances under $50,000. Larger balances may have longer terms. You can change your payment amount later if your financial situation changes, though the IRS may charge another setup fee if you modify the plan.
How interest and penalties add to your bill each month
The IRS charges interest on any unpaid tax at a rate set quarterly — it is currently around 8 percent per year, but it changes. On top of that, you owe a failure-to-pay penalty of 0.5 percent of your unpaid balance each month (it can be higher if you did not file on time). Both of these are added to your balance every month, so the longer your plan runs, the more you owe in total.
For example, if you owe $5,000 and set up a 36-month plan at $150 per month, you will pay roughly $5,400 to $5,600 by the end — the extra $400 to $600 is interest and penalties. If you stretched it to 60 months at $100 per month, you would pay closer to $6,000 total. The math is simple: higher monthly payments mean lower total cost.
Interest and penalties do not stop accruing if you miss a payment or if your plan is cancelled. If the IRS terminates your agreement because you missed a payment, you still owe the full original debt plus all the interest and penalties that have built up, and the IRS can then pursue collection action.
Setting up a plan online, by phone, or through a tax professional
The fastest way to set up a plan is through IRS.gov using the Online Payment Agreement tool. You log in, enter your tax information, propose a monthly payment, and the IRS tells you immediately whether you may have access to. If you do, you can enroll right then. This route qualifies you for the $31 setup fee if you choose direct debit.
You can also call the IRS at 1-800-829-1040 to set up a plan by phone. A representative will walk you through your options, calculate a suggested payment, and enroll you. Phone enrollment without direct debit costs $225. If you have a tax professional — a CPA, enrolled agent, or tax attorney — they can set up the plan on your behalf, though they may charge their own fee for the service.
By mail, you can send Form 9465 (Installment Agreement Request) to the IRS address listed in your tax notice. This is slower — it takes weeks to process — and costs $225 to set up. Most people avoid this route unless they have no other option.
What happens if you miss a payment or cannot afford the monthly amount
If you miss a payment, the IRS will send you a notice. If you miss three payments in a row, the IRS can cancel your plan and demand the full remaining balance immediately. Once the plan is cancelled, the IRS can pursue collection action: wage garnishment (taking money directly from your paycheck), bank levies (freezing your bank account), or a lien on your property.
If your financial situation changes and you cannot afford your monthly payment, contact the IRS before you miss a payment. You can request a modification to lower the monthly amount or extend the plan. The IRS will usually work with you, though modifying the plan may trigger another setup fee. Do not simply stop paying — that guarantees collection action.
If you are in genuine hardship and cannot pay anything, you may be able to request Currently Not Collectible (CNC) status, which temporarily pauses collection action. Interest and penalties still accrue, but the IRS stops pursuing garnishment or levies while you are in hardship. This is not a forgiveness — you still owe the debt — but it gives you breathing room.
Comparing payment plans to other options
A payment plan is not your only option if you cannot pay your tax bill. An Offer in Compromise lets you settle for less than you owe, but the IRS only accepts these if you truly cannot pay the full amount and have minimal assets. A temporary delay (CNC status) pauses collection while you recover financially. Some people also explore an installment plan through a third-party payment processor, which charges its own fees but may offer more flexible terms.
The key difference: a payment plan requires you to pay the full amount you owe (plus interest and penalties). An Offer in Compromise might reduce what you owe, but it is harder to get. A payment plan is the most straightforward route if you have a steady income and can commit to monthly payments.
Frequently Asked Questions
Can I set up a payment plan if I already have a wage garnishment or bank levy?
Yes. In fact, setting up a plan often stops ongoing collection action. Once the IRS approves your plan, they typically release wage garnishments and levies. You must stay current on your plan payments, or the IRS can restart collection action.
What if I pay off my plan early?
You can pay off the remaining balance at any time without penalty. The IRS will not refund the setup fee, but you will stop accruing interest and penalties once the balance is zero. Paying early saves you money on interest.
Do I need a tax professional to set up a payment plan?
No. You can set one up yourself online or by phone in minutes. A tax professional can help if you have a complex situation or multiple years of unpaid taxes, but most people handle it directly with the IRS.
What if my income changes and I cannot afford my monthly payment?
Contact the IRS before you miss a payment and request a modification. You can lower the monthly amount or extend the plan. The IRS usually approves modifications, though another setup fee may apply.
How long does a payment plan last?
Short-term plans run up to 120 days. Long-term plans typically run 24 to 72 months depending on the balance and your circumstances. The IRS will tell you the term when you enroll.