You can defer federal income tax, but only through specific IRS programs—and you'll owe penalties and interest on what you delay
The IRS does not let you simply push your tax bill to next year without consequences. If you owe taxes when you file, you have a few real options: pay now, set up a payment plan that spreads the debt over months, or request a temporary delay through Currently Not Collectible (CNC) status. Each has different rules, costs, and timelines. Deferring means you still owe the full amount plus interest and penalties that grow while you wait.
The most common path is an installment agreement, which lets you pay in monthly chunks rather than a lump sum. The IRS charges a setup fee (usually $31 to $225 depending on how you enroll) and interest that accrues daily. If you cannot pay even in installments, CNC status pauses collection temporarily—but interest and penalties keep building, and the debt does not disappear.
Key Takeaways
- An installment agreement spreads your tax bill over months or years, but you pay interest and penalties on top of what you owe.
- Currently Not Collectible status halts IRS collection action for up to two years, though interest and penalties continue to accrue.
- Filing your return on time and requesting a deferral before the IRS contacts you keeps your options open and avoids additional failure-to-pay penalties.
- The IRS charges setup fees for payment plans ($31 to $225) and daily interest that compounds, so the longer you defer, the more you pay.
- If you cannot pay within 120 days, an installment agreement is usually cheaper than letting the debt sit unpaid.
How installment agreements work and what they cost
An installment agreement is a formal contract with the IRS to pay your tax debt in monthly payments. You propose a monthly amount, and the IRS approves it if the payment covers interest and penalties plus a portion of the principal. The agreement lasts until the debt is paid in full, which can take years depending on how much you owe and how much you can pay each month.
The IRS charges a setup fee when you enroll. If you set up the plan online through IRS Direct Pay or by phone, the fee is $31. If you use a payment processor (like a credit card or third-party payment service), the fee is $225, though the processor may charge additional fees on top. You also pay interest daily on the unpaid balance—currently 8% per year, though this rate changes quarterly. Penalties also accrue: a failure-to-pay penalty of 0.5% per month on unpaid taxes, and a failure-to-file penalty if you did not file your return on time.
You can request a short-term extension (up to 120 days) for free if you think you can pay the full amount within that window. After 120 days, you must move to an installment agreement or another deferral option.
Currently Not Collectible status: pausing collection, not erasing debt
Currently Not Collectible (CNC) status is a temporary halt to IRS collection activity. The IRS stops sending notices, making phone calls, and pursuing wage garnishment or bank levies while you are in CNC status. This status typically lasts up to two years, after which the IRS reviews your case to see if your situation has improved.
CNC status does not erase your debt or stop interest and penalties from accruing. Interest continues to compound daily at the current rate, and penalties keep adding. If your income improves during the CNC period, the IRS may contact you to restart collection or move you to a payment plan. The debt remains on your record and can affect your ability to get credit or a mortgage.
To request CNC status, you must show the IRS that you cannot pay your tax debt and have no reasonable way to do so in the near term. You file Form 433-F (a short financial statement) or Form 433-A (a detailed one) showing your income, expenses, and assets. The IRS uses this to determine whether you truly cannot pay. CNC is not a deferral you request upfront—it is a status the IRS assigns after you explain your financial hardship.
Requesting a deferral before the IRS contacts you
If you owe taxes when you file your return, you can request a deferral immediately rather than waiting for the IRS to send a bill or notice. Filing your return on time and requesting a payment plan or extension before the IRS initiates collection keeps you in control of the process and can lower penalties.
You can request a short-term extension (up to 120 days) by calling the IRS at 1-800-829-1040 or through your online IRS account. You do not need to provide financial information for a short-term extension. If you need longer than 120 days, you must set up an installment agreement, which requires you to propose a monthly payment amount.
If the IRS has already sent you a bill or a notice of intent to levy, you can still request a payment plan, but you may face additional collection costs and a higher setup fee. Acting early avoids these extra charges.
What happens if you miss a payment on a deferral plan
If you miss a payment on an installment agreement, the IRS may terminate the agreement and demand full payment immediately. A single missed payment does not automatically end the agreement, but repeated missed payments do. Once the agreement is terminated, the IRS can resume collection action, including wage garnishment and bank levies.
If you know you will miss a payment, contact the IRS before the due date. You can request a one-time extension of up to 120 days, or you can ask to modify the agreement to lower your monthly payment. The IRS charges a modification fee (usually $31 to $225) if you change the agreement more than once.
If your circumstances change and you can no longer afford the monthly payment, you can request CNC status instead. This stops collection action while you get back on your feet, though interest and penalties continue to accrue.
Comparing deferral options: cost and timeline
| Option | Setup Cost | Monthly Payment | Interest & Penalties | Duration |
|---|---|---|---|---|
| Short-term extension (up to 120 days) | Free | Full amount due at end | Accrue daily | Up to 120 days |
| Installment agreement (online) | $31 | You propose; IRS approves | Accrue daily | Until debt is paid |
| Installment agreement (payment processor) | $225 + processor fees | You propose; IRS approves | Accrue daily | Until debt is paid |
| Currently Not Collectible status | Free | None (collection paused) | Accrue daily | Up to 2 years |
State and local taxes: different rules than federal
State and local income taxes have their own deferral rules, separate from federal IRS programs. Some states offer payment plans similar to the IRS installment agreement; others do not. A few states allow temporary deferrals for hardship, but the terms vary widely.
Contact your state tax agency directly to ask about deferral options. You can find your state's tax department through the Federation of Tax Administrators website or by searching "[your state] tax deferral." Do not assume that a federal deferral covers state taxes—you must request state deferrals separately.
Frequently Asked Questions
Can I defer my taxes to next year if I file my return late?
You can request a deferral at any time, but filing late adds a failure-to-file penalty on top of the failure-to-pay penalty. File your return as soon as possible and request a deferral in the same step. The sooner you file, the sooner you can start a payment plan and stop penalties from growing.
What if I cannot afford any monthly payment on an installment agreement?
Request Currently Not Collectible status instead. You will not make payments, but interest and penalties continue to accrue. The IRS reviews your case every two years to see if your situation has improved. If it has, they may move you to a payment plan.
Does deferring my taxes hurt my credit score?
A federal tax deferral does not directly appear on your credit report. However, if the IRS places a tax lien on your property (which can happen if you do not pay or set up a plan), that lien may show up on credit reports and lower your score. Setting up a payment plan or CNC status before a lien is filed protects your credit.
Can I defer estimated taxes for next year?
No. Estimated taxes are due on specific dates throughout the year (April 15, June 15, September 15, and January 15). If you cannot pay an estimated tax payment, you can request a short-term extension or set up a payment plan for that specific payment, but you cannot push it to the following year without penalties and interest.
How long does an installment agreement last?
An installment agreement lasts until your tax debt is paid in full. If you owe $5,000 and pay $200 per month, the agreement will last about two years. The IRS does not set a maximum length—it depends on how much you owe and how much you can afford to pay each month.