Yes, you can set up a payment plan with the IRS if you owe taxes

The IRS allows you to pay what you owe in monthly installments instead of a lump sum. This is called an installment agreement. You can set one up yourself online, by phone, or through a tax professional. The IRS charges a setup fee (usually $31 to $225 depending on the method) and interest on the unpaid balance, but the monthly payment amount is yours to negotiate within limits.

The key difference between payment plans is how much you owe and how you set it up. If you owe less than $50,000 in combined taxes, penalties, and interest, you can use the streamlined process, which is faster and costs less. If you owe more, you'll need to provide financial information and the IRS will calculate what you can afford.

Key Takeaways

  • You can set up an installment agreement online through IRS.gov, by calling 1-800-829-1040, or by mailing Form 9465 to the IRS address on your tax notice.
  • The IRS charges a setup fee ($31 to $225) and continues to charge interest on your unpaid balance until the debt is paid in full.
  • Short-term agreements (120 days or less) have lower fees than long-term plans, so paying faster saves you money on interest and fees.
  • If you miss a payment, the agreement can be terminated and the IRS can resume collection action, so set up a payment amount you can actually meet each month.
  • The IRS will not remove the tax lien from your property until the debt is fully paid, even if you are on a payment plan.

Setting up a plan online through the IRS website

The fastest way to set up a payment plan is through the IRS Online Payment Agreement tool at IRS.gov. You'll need your Social Security number or Individual Taxpayer Identification Number, your filing status, and the tax year you owe for. The tool will ask you to confirm the amount you owe and then let you choose a monthly payment date between the 1st and 28th of each month.

The online tool works only if you owe $50,000 or less in total tax debt. If you owe more, you'll have to call or mail in a form. Once you submit your agreement online, you'll receive a confirmation number immediately, and the IRS will send you a formal agreement letter by mail within 30 days. Your first payment is usually due about 30 days after you set up the plan.

You can change your payment date or the amount you pay each month by logging back into your IRS account, but you cannot change the total length of the agreement without contacting the IRS directly.

Calling the IRS to set up a plan by phone

If you prefer to talk to someone, call the IRS at 1-800-829-1040. Have your tax notice in front of you and be ready to tell them the monthly payment amount you want to pay. The IRS representative will calculate how long your plan will last based on that amount and will tell you the setup fee before you agree.

Phone lines are busiest in the morning and during tax season (January through April), so call in the afternoon or outside tax season if you can. Wait times can be 30 minutes or longer during peak times. Once you agree to the plan over the phone, the IRS will mail you a formal agreement letter confirming the terms.

Mailing Form 9465 to the IRS

You can also request a payment plan by mailing Form 9465, Installment Agreement Request, to the IRS address shown on your tax notice. Include a check or money order for your first payment if you want to start paying right away. The form asks for basic information: your name, Social Security number, the tax year you owe for, and the monthly payment amount you propose.

Mailing takes longer than online or phone setup. The IRS typically receives your form within 7 to 10 days, and you should expect a response letter within 30 days. If you need a plan in place quickly, use the online tool or call instead.

How much the IRS charges for a payment plan

The setup fee depends on how you set up the plan. Online setup costs $31. Phone or mail setup costs $225. If you owe $25,000 or less and set up automatic payments from your bank account (called a direct debit installment agreement), the fee drops to $31 regardless of method.

In addition to the setup fee, you pay interest on your unpaid balance. The interest rate is set quarterly by the IRS and is currently around 8 percent per year, though it changes. You also continue to owe any penalties the IRS assessed. Interest and penalties accrue monthly until your debt is paid off, so the longer your plan runs, the more you pay in total.

If you can pay off your debt in 120 days or less, you can request a short-term agreement, which has no setup fee at all. This is worth considering if you expect a bonus, inheritance, or other money soon.

What happens if you miss a payment

If you miss a payment, the IRS will send you a notice. You typically have 30 days to make the payment before the IRS terminates your agreement. Once the agreement is terminated, the IRS can resume collection action, which may include wage garnishment, bank levies, or a tax lien on your property.

If you know you cannot make a payment on time, contact the IRS before the due date. You can request a one-time extension or ask to modify your payment amount. The IRS is more willing to work with you if you reach out first rather than simply missing the payment.

Tax liens and payment plans

Setting up a payment plan does not remove a tax lien from your property. The IRS files a lien to secure its claim to your assets, and that lien stays in place until you pay the debt in full. A lien damages your credit and makes it harder to borrow money or sell property.

However, if you set up a payment plan and stay current on your payments, the IRS may agree to subordinate the lien, which means it agrees to let other creditors (like a mortgage lender) take priority. You have to request subordination in writing, and the IRS will consider it if you have been paying on time for at least three months. Subordination does not remove the lien, but it can help you refinance a mortgage or take out a loan.

Frequently Asked Questions

Can I set up a payment plan if I'm being audited?

Yes, but the IRS will not finalize the agreement until the audit is complete. If you receive a notice that you owe taxes as a result of an audit, you can set up a plan immediately. If the audit is still ongoing, contact the auditor or the IRS office handling your case to discuss payment options.

What if I can't afford the monthly payment the IRS says I should pay?

You can propose a lower payment amount when you set up the plan. The IRS will work with you, but the plan cannot run longer than 72 months (six years) for most taxpayers. If your proposed payment is very low, the IRS may ask for financial information to verify you cannot pay more. Be honest about what you can afford — the IRS prefers a realistic plan you'll stick to over an aggressive one you'll break.

Do I still have to file my taxes while on a payment plan?

Yes. A payment plan covers only the taxes you already owe. You must continue to file your tax return each year and pay any taxes due for that year. If you don't, the IRS can terminate your payment plan and add the new debt to your existing obligation.

Can I pay off my plan early without a penalty?

Yes. You can pay off your installment agreement at any time without penalty. Paying early saves you money on interest. You can make extra payments or a lump sum payment whenever you have the money available.

What if my financial situation changes and I can't keep paying?

Contact the IRS and explain the change. You can request to modify your payment amount or extend the length of your plan. The IRS may also place your account in currently not collectible status temporarily if you are experiencing severe hardship, which pauses collection action while you recover financially.