Yes, you can set up a payment plan with the IRS if you owe federal income tax
The IRS calls this an installment agreement. It lets you pay what you owe in monthly chunks instead of one lump sum. You can set this up online, by phone, or by mail — and in many cases you can do it without talking to a person.
The catch is that you still owe penalties and interest on top of the original tax. The longer you stretch payments out, the more interest adds up. But if you cannot pay the full amount right now, a payment plan keeps you from defaulting and triggering wage garnishment or a bank levy.
State tax agencies also offer payment plans for state income tax debt, though the process and terms vary by state. This article covers federal tax payment plans; if you owe state tax, contact your state revenue department directly.
Key Takeaways
- The IRS offers short-term plans (120 days or less) with no setup fee and long-term plans (more than 120 days) with a setup fee ranging from $31 to $225 depending on how you set it up.
- You can set up a federal payment plan online through IRS.gov without calling, as long as you owe $50,000 or less in combined taxes, penalties, and interest.
- Monthly payments must be at least $25, and interest and penalties continue to accrue on your balance until it is paid in full.
- If you miss a payment or fall behind on your other tax obligations, the IRS can cancel the agreement and pursue collection action.
- State tax payment plans work differently in each state and often require you to contact the state revenue agency directly.
How to set up a federal payment plan online
Go to IRS.gov and search for "Online Payment Agreement." You will land on a page where you can enter your Social Security number, filing status, and tax year. The system will show you what you owe and let you choose a monthly payment amount.
You need to know your adjusted gross income (AGI) from your tax return for the year you owe on. The IRS uses this to verify your identity. Have your bank account information ready if you want to set up automatic monthly payments, which most people do — it is easier to maintain and the IRS charges a lower setup fee ($31 instead of $225) when you agree to automatic debit.
The online system works for debts up to $50,000. If you owe more than that, you will need to call the IRS at 1-800-829-1040 or mail Form 9465 (Installment Agreement Request) with a cover letter explaining your situation.
Payment plan types and how long they last
The IRS offers two main structures. A short-term payment plan covers what you owe in 120 days or less — typically for people who can pay most of it quickly but need a few months to finish. There is no setup fee, and interest and penalties still accrue but at a slower rate than if you ignored the debt.
A long-term installment agreement stretches payments over more than 120 days, sometimes for years. Setup fees range from $31 (automatic bank debit) to $225 (payment by check or money order). The longer your plan, the more interest you pay overall, but your monthly payment stays manageable.
You can pay off the plan early without penalty. If your financial situation improves, you can increase your monthly payment or pay a lump sum toward the balance at any time.
What happens to interest and penalties while you are on a payment plan
Interest and penalties do not stop accruing just because you have a payment plan. The IRS charges interest on unpaid tax at a rate set quarterly — currently around 8 percent per year, though this changes. You also owe a failure-to-pay penalty of 0.5 percent per month on the unpaid balance, up to 25 percent total.
This means your monthly payment covers some of the current month's interest and penalty, plus a portion of the original tax. Early in the plan, most of your payment goes to interest and penalty rather than reducing the principal. As you pay down the balance, more of each payment goes toward the actual tax owed.
If you can pay faster than your agreement requires, do it. Every extra dollar you send reduces the principal and saves you money on future interest.
What disqualifies you or cancels your agreement
The IRS can cancel your payment plan if you miss a payment or fall more than 30 days behind. They will send you a notice before they do this, but cancellation means the full balance becomes due immediately and collection action can resume.
You can also lose the agreement if you fail to file a tax return or pay a new tax bill on time while the plan is active. The IRS expects you to stay current on your ongoing tax obligations — the payment plan covers only past debt.
If your plan is cancelled, you can request a new one, but the IRS may impose stricter terms or require you to work with a revenue officer instead of using the online system.
State tax payment plans
Most states offer payment plans for state income tax debt, but the rules differ significantly. Some states allow online setup similar to the federal system; others require a phone call or written request. Setup fees, interest rates, and minimum monthly payments vary by state.
Contact your state revenue or taxation department directly — search "[your state] tax payment plan" or look for a phone number on your tax notice. Have your state tax ID number and the amount you owe ready. Some states will negotiate a lower monthly payment if you explain financial hardship, though this is not may provide.
If you owe both federal and state tax, you will need separate payment plans for each. Paying one does not reduce the other.
What to do if you cannot afford even a payment plan
If your monthly payment would be more than you can manage, you have other options. You can request an Offer in Compromise, which lets you settle the debt for less than you owe — but the IRS only grants these in specific situations, usually when your income is very low or your financial hardship is severe.
You can also request Currently Not Collectible status, which temporarily pauses collection action while you are in financial hardship. Interest and penalties still accrue, but the IRS stops pursuing wage garnishment or bank levies. This is not forgiveness; when your situation improves, collection resumes.
Both of these require paperwork and often a phone call to the IRS. Start by calling 1-800-829-1040 and asking about your options based on your income and expenses.
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 first so the IRS knows what you owe. If you are behind on filing, file as soon as you can, even if you cannot pay. Filing stops the failure-to-file penalty from growing and lets you set up a payment plan once the return is processed.
What if I miss one payment?
The IRS will send you a notice. You have 30 days to catch up. If you pay within that window, your plan stays active. If you do not, the IRS can cancel the agreement and the full balance becomes due. Contact the IRS immediately if you know you will miss a payment.
Can I change my monthly payment amount after the plan starts?
Yes. You can request a modification online through IRS.gov or by calling 1-800-829-1040. If your income increased, you can pay more and finish faster. If your situation got worse, you can request a lower payment, though the IRS may extend the plan length.
Do I still get a refund if I am on a payment plan?
No. Any refund you are owed will be applied to your payment plan balance automatically. The IRS does this to reduce what you owe. If you are expecting a refund, it will arrive as a credit against your debt rather than as a check or deposit.
What if I pay off the plan early?
You can pay the remaining balance at any time without penalty. Send a check or money order with your tax ID number, or pay online through IRS.gov. Paying early saves you money on interest that would have accrued over the remaining months.