Yes, the IRS lets you set up a payment plan if you owe taxes
The IRS offers installment agreements that let you pay what you owe over time instead of in one lump sum. You can set one up yourself online, by phone, or through the mail. The IRS has several types of plans depending on how much you owe and how quickly you can pay.
The key difference between plans is whether the IRS will file a public notice of your tax debt. Short-term plans (120 days or less) do not trigger a public filing. Longer plans do, which affects your credit report. You will also pay a setup fee and interest on the unpaid balance until the debt is gone.
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.
- Short-term plans (120 days or less) cost less and do not create a public tax lien, but long-term plans give you more time to pay.
- Setup fees range from $31 to $225 depending on the plan type and whether you set it up online or by other methods.
- The IRS charges interest and a failure-to-pay penalty on the unpaid balance each month until you finish paying.
- If your income changes or you cannot make a payment, you can modify or temporarily pause your plan by contacting the IRS.
Three main types of payment plans
A short-term plan lets you pay in full within 120 days. There is no setup fee, and the IRS will not file a Notice of Federal Tax Lien. This is the cheapest option if you can pay most of what you owe quickly.
A long-term installment agreement is for amounts you cannot pay in 120 days. The IRS will file a Notice of Federal Tax Lien, which appears on your credit report and makes it harder to borrow money. Setup fees are $31 to $225 depending on how you set up the plan. You pay monthly until the debt is gone, which can take years.
A streamlined installment agreement is available if you owe $50,000 or less in combined taxes, penalties, and interest. The setup fee is lower ($31 to $225), and you do not need to provide detailed financial information. Monthly payments are usually $25 to $600 depending on how much you owe and how long you want to pay.
How to set up a plan online
The fastest way is through the IRS Online Payment Agreement tool at IRS.gov. You will need your Social Security number or Individual Taxpayer Identification Number, your date of birth, and the tax year you owe for. You can set up a plan in minutes and see your monthly payment amount before you commit.
Online setup is available only if you owe $50,000 or less and have filed all required tax returns. If you owe more or have unfiled returns, you must call or mail Form 9465 instead. The online tool also lets you choose your payment due date each month and set up automatic payments from your bank account.
Phone and mail options
Call the IRS at 1-800-829-1040 to discuss your situation with a representative. They can answer questions about which plan fits your income and explain what happens if you miss a payment. Wait times are usually shorter early in the morning or later in the week. Have your tax notice and recent pay stubs ready.
You can also mail Form 9465 (Installment Agreement Request) to the IRS address shown on your tax notice. Include a cover letter explaining why you need a plan and what monthly payment you can afford. The IRS will mail you a response within 30 days. This method takes longer but works if you do not have internet access or prefer a paper record.
What happens after you set up a plan
Once your plan is approved, you will receive a confirmation letter with your monthly payment amount and due date. You can pay by automatic bank withdrawal, credit or debit card, check, or money order. Automatic withdrawal is the easiest and ensures you never miss a payment.
Interest and penalties continue to accrue on the unpaid balance each month. The failure-to-pay penalty is 0.5% of what you owe per month, and interest compounds daily at a rate the IRS sets each quarter (currently around 8% per year, but this changes). This means your total debt grows even as you make payments.
If you fall behind on a payment, the IRS will send you a notice. You have the right to request a Collection Due Process hearing before the IRS can take enforcement action like wage garnishment or bank levy. If you cannot make a payment, contact the IRS immediately to discuss modifying your plan or requesting a temporary pause.
Modifying or ending your plan early
If your income increases, you can pay off the debt faster by making larger payments or paying in full. There is no penalty for paying early. Contact the IRS to confirm the payoff amount, since interest continues to accrue until the final payment clears.
If your income drops and you cannot afford your monthly payment, you can request a plan modification. Call 1-800-829-1040 or log into your IRS account online to request a lower payment or longer repayment period. The IRS will review your current financial situation and may approve a change. If you are experiencing severe hardship, you may also request a temporary pause called Currently Not Collectible status, though interest and penalties will still accrue.
Fees and costs you will pay
Setup fees depend on how you set up your plan. Online setup costs $31 for a streamlined agreement. Phone or mail setup costs $225 for a long-term plan or $31 for a streamlined plan. If you set up automatic bank withdrawal, the fee is $31 regardless of the plan type.
In addition to the setup fee, you pay interest on the unpaid balance. The IRS interest rate changes quarterly and is currently around 8% per year, but check IRS.gov for the current rate. You also pay the failure-to-pay penalty of 0.5% per month on the unpaid balance. Together, these can add thousands of dollars to what you originally owed.
If you miss a payment or violate the terms of your agreement, the IRS can cancel the plan and demand full payment immediately. You will also owe a reinstatement fee of $225 if you want to set up a new plan after default.
When a payment plan might not work
If you owe more than $50,000, you cannot use the streamlined online process and must work with the IRS directly by phone or mail. The IRS may require you to submit a detailed financial statement (Form 433-F or 433-A) so they can verify you cannot pay in full.
If you have unfiled tax returns, the IRS will not set up a payment plan until you file them. If you are in bankruptcy, you cannot set up a plan without court permission. If you have a history of defaulting on IRS agreements, the IRS may deny your request or require a larger monthly payment.
Frequently Asked Questions
Can I set up a payment plan if I owe back taxes from multiple years?
Yes. The IRS will combine all your tax debt into one installment agreement. You will make one monthly payment that covers all years you owe for. The agreement covers only federal income tax; if you also owe state taxes, you must contact your state tax agency separately.
What happens to my payment plan if I get a refund next year?
The IRS will automatically apply your refund to your payment plan balance, reducing what you owe. This happens without your involvement. If you want to keep your refund instead, you must contact the IRS before filing your return to request an offset exemption, though this is rarely granted.
Do I need a lawyer to set up a payment plan?
No. You can set up a plan yourself online, by phone, or by mail at no cost beyond the IRS setup fee. A tax professional or attorney can help if your situation is complex, but most people handle it alone. The IRS website has step-by-step instructions.
Can the IRS garnish my wages if I have a payment plan?
Not while you are making on-time payments under an active agreement. However, if you miss a payment and do not respond to IRS notices, they can cancel the plan and issue a wage garnishment. Contact the IRS immediately if you cannot make a payment to avoid this.
How long does it take to get approval for a payment plan?
Online approval is instant. Phone approval usually takes a few minutes. Mail approval takes 30 days or more. Once approved, you will receive a confirmation letter with your first payment due date, which is usually 20 to 30 days after approval.