You have payment options even if you don't have the money right now
The IRS and most state tax agencies do not require you to pay your full tax bill on the due date if you cannot afford it. You can request a payment plan, ask for a short delay, or in some cases reduce what you owe through an offer in compromise. The key is to act before the deadline passes — waiting until after April 15 (or your state's deadline) adds penalties and interest to what you already owe, and closes off some options.
If you owe federal taxes, the IRS offers three main paths: a short-term extension, an installment agreement, or an offer in compromise. Each has different costs, timelines, and requirements. State tax agencies usually offer similar options, though the names and rules vary by state.
Key Takeaways
- Requesting a payment plan or extension before the deadline stops additional penalties from accruing, even though interest will still apply to unpaid balance.
- The IRS short-term extension gives you 120 days to pay without a formal plan, and costs nothing if you pay within that window.
- An installment agreement lets you pay in monthly chunks, but requires a setup fee and charges interest on the unpaid balance each month.
- An offer in compromise settles your debt for less than you owe, but requires detailed financial paperwork and the IRS accepts very few of them.
- State tax agencies have their own payment plans and contact methods — check your state's tax website or the bill itself for the right phone number.
The IRS short-term extension: 120 days to pay with no setup cost
If you need a few months to gather the money, you can request a 120-day payment extension from the IRS. This is the fastest option and costs nothing to set up. You still owe the tax, plus interest on the unpaid amount, but you avoid the failure-to-pay penalty as long as you request the extension before the original due date.
To request this extension, call the IRS at 1-800-829-1040 or go to IRS.gov and use the Online Payment Agreement tool. You will need your Social Security number, the tax year, and the amount you owe. The IRS will tell you immediately whether the extension is granted. You then have 120 days from the original due date to pay in full.
This option works best if you know you can pay the full amount within four months. If you need longer, an installment agreement is a better fit.
Installment agreements: Monthly payments over time
An installment agreement lets you pay your tax bill in monthly chunks instead of a lump sum. The IRS charges a setup fee (typically $31 to $225 depending on how you set it up) and interest on whatever balance remains unpaid each month. You can have the payments automatically deducted from your bank account, which lowers the setup fee.
The IRS offers two types of installment agreements. A short-term agreement covers balances under $100,000 and lets you pay over up to 180 days — this is cheaper to set up than a long-term plan. A long-term agreement covers larger balances and can stretch payments over several years, but costs more in setup fees and total interest.
You can set up an installment agreement online through the IRS Online Payment Agreement tool, by phone at 1-800-829-1040, or by mailing Form 9465 (Installment Agreement Request) with your tax return or bill. If you set it up online or by phone, you get an answer within minutes. If you mail the form, allow two to three weeks for a response.
State tax payment plans: Rules vary by where you live
Every state with an income tax offers some form of payment plan, but the rules, fees, and contact methods differ. Some states allow you to set up a plan online; others require a phone call or mailed form. Some charge a setup fee; others do not.
The fastest way to find your state's option is to look at the tax bill itself — most bills include a phone number for payment questions. You can also visit your state's tax agency website and search for "payment plan" or "installment agreement." State tax agencies typically require you to request the plan before the deadline, just as the IRS does.
If you owe both federal and state taxes, you will need to set up separate plans with each agency. Paying one does not automatically satisfy the other.
Offer in compromise: Settling for less than you owe
An offer in compromise is a settlement where you pay the IRS a lump sum that is less than your full tax debt, and the rest is forgiven. This sounds appealing, but the IRS accepts very few of them — typically only when there is genuine doubt about whether you can ever pay the full amount, or when the amount owed is wrong.
To pursue an offer in compromise, you must file Form 656 (Offer in Compromise) and include detailed financial statements showing your income, expenses, assets, and debts. The IRS will review your situation and either accept, reject, or counter your offer. The process usually takes several months.
You can file an offer in compromise online through the IRS Online Offer System, or by mailing the form. There is a $225 filing fee, though you may be able to request a fee waiver if your income is very low. Do not pursue this route unless you have genuinely exhausted other options — most people are better served by an installment agreement.
What happens if you miss a payment plan deadline
If you set up a payment plan and then miss a payment, the IRS will send you a notice. You typically have a grace period of a few days before the agreement is terminated. If the agreement is terminated, you will owe the full remaining balance immediately, plus any penalties and interest that have accrued.
If you know you will miss a payment, contact the IRS before the due date. You can request a modification to your plan — a longer timeline, a smaller monthly payment, or a temporary pause. The IRS is usually willing to work with you if you reach out proactively rather than simply missing the payment.
How to avoid penalties and interest from the start
The moment you realize you cannot pay by the deadline, request an extension or payment plan. Do not wait. Every day you delay adds interest to what you owe, and penalties begin accruing immediately after the deadline passes.
The failure-to-pay penalty is 0.5% of your unpaid tax per month, up to 25% total. Interest compounds daily at a rate set by the IRS each quarter (currently around 8% annually, but this changes). A $5,000 tax bill that goes unpaid for a year can easily grow to $5,600 or more just from interest and penalties.
Requesting a payment plan or extension before the deadline stops the failure-to-pay penalty from accruing further, though interest will still apply to the unpaid balance. This is why timing matters.
Frequently Asked Questions
Can I get a payment plan if I already missed the deadline?
Yes, but you will owe penalties and interest on top of the original tax. The sooner you contact the IRS or your state tax agency after the deadline, the sooner you can stop additional penalties from accruing. Call immediately rather than waiting.
What if I can't afford the monthly payment on an installment agreement?
Contact the IRS or your state agency and ask to modify the agreement. You can request a longer timeline, a smaller monthly payment, or a temporary pause if you are facing a hardship. Modifications are usually granted if you ask before you miss a payment.
Do I have to pay the setup fee for an installment agreement?
The IRS charges a setup fee, but it is lower if you set up automatic bank withdrawals (typically $31 instead of $225). Some states do not charge a setup fee at all. Check your state's rules and ask about fee reductions if your income is very low.
Will a payment plan affect my credit score?
A payment plan itself does not appear on your credit report. However, if the IRS or state files a tax lien against you (which happens when taxes go unpaid for a long time), that lien will appear on your credit report and harm your score. Setting up a payment plan before a lien is filed protects your credit.
Can I set up a payment plan for both federal and state taxes at the same time?
No, you must set up separate plans with the IRS and your state tax agency. Each has its own system and contact method. However, you can do both in the same day — call the IRS first, then call your state tax agency.