A payment plan lets you pay your tax bill in monthly installments instead of all at once

If you owe the IRS money and cannot pay it in full by the tax deadline, you can set up a payment plan (also called an installment agreement). The IRS collects what you owe through regular monthly payments spread over months or years. You still owe the full amount plus interest and penalties, but you avoid wage garnishment, bank levies, and a tax lien on your property — at least while you are making payments on time.

The IRS offers several types of payment plans. The most common is a short-term payment plan for balances under $100,000, which gives you up to 180 days to pay. For larger or longer-term debts, you can set up a long-term installment agreement that can run for years. Each type has different setup fees and interest rates.

Key Takeaways

  • A payment plan spreads your tax debt across monthly payments, but you still pay the full amount owed plus interest and penalties on top.
  • Short-term plans (under 180 days) cost $31 to set up; long-term plans cost $31 to $225 depending on how you pay and your income level.
  • You can set up a plan online through IRS.gov, by phone, or by mail, and the process usually takes one to three weeks.
  • Missing a payment or paying late can end your plan and trigger collection action, so set up automatic payments if possible.
  • Interest accrues daily on your remaining balance, so paying faster saves you money even if you are on a plan.

Types of payment plans and their costs

The IRS charges different fees depending on the type of plan you choose and how you set it up. A short-term payment plan covers balances under $100,000 and gives you up to 180 days to pay. The setup fee is $31, and there is no monthly payment amount — you just agree to pay the full balance within that window. This plan is useful if you know you can pay within six months but need a little breathing room.

A long-term installment agreement is for balances of $100,000 or more, or when you need longer than 180 days to pay. Setup fees range from $31 to $225 depending on your income and how you pay. If you set up the plan online or by phone using direct debit (automatic bank withdrawal), the fee is $31. If you pay by check, credit card, or other method, the fee is $225. Low-income taxpayers (those below a certain threshold, which changes yearly) may pay a reduced fee of $31 regardless of payment method.

Once your plan is active, the IRS charges interest on your remaining balance. The interest rate is the federal short-term rate plus 3 percent, compounded daily. As of 2024, this rate is around 8 percent per year, but it changes quarterly. You also continue to owe any penalties that were assessed — typically 0.5 percent of your unpaid tax per month, though this can be reduced or removed in some cases if you have a good payment history.

How to set up a payment plan

You can set up a payment plan through three main routes: online, by phone, or by mail. The fastest and cheapest option is online through IRS.gov. Go to the IRS Online Payment Agreement tool, enter your Social Security number or employer ID, and follow the prompts. You will see your balance, choose a monthly payment amount, and select a due date. If you set up automatic bank withdrawal, the fee is $31. The plan is usually active within one to three business days.

If you prefer to speak with someone, you can call the IRS at 1-800-829-1040 (individual) or 1-800-829-4933 (business). A representative will walk you through the plan options and set it up over the phone. The fee is the same as online ($31 for direct debit), but processing takes longer — usually one to two weeks. You will receive a confirmation letter in the mail.

You can also set up a plan by mail. Download Form 9465 (Installment Agreement Request) from IRS.gov, fill it out, and mail it to the address listed on your tax bill or notice. Include a check for the setup fee. Processing by mail takes three to four weeks, and you will receive written confirmation when the plan is active.

Monthly payment amounts and payment dates

When you set up a plan, you choose how much to pay each month and what day of the month the payment is due. The IRS does not set a minimum payment — you can pay as little as you want, as long as your balance is paid off by the end of your plan term. However, the longer you stretch out payments, the more interest you will owe.

For example, if you owe $5,000 and set up a three-year plan, your monthly payment might be around $150 (before interest). If you stretch it to five years, your payment drops to around $100 per month, but you will pay significantly more in interest over time. Use the IRS payment calculator on their website to estimate what your monthly payment and total interest will be under different scenarios.

You can pay by automatic bank withdrawal (direct debit), check, credit card, or electronic federal tax payment system (EFTPS). Automatic withdrawal is the cheapest option because it qualifies you for the lowest setup fee ($31). If you pay by check or money order, mail it to the address on your payment plan notice. Credit card payments are processed through third-party payment processors and include a convenience fee on top of your payment.

What happens if you miss a payment

If you miss a payment or pay late, the IRS will send you a notice. If you miss a payment by more than 10 days, your payment plan can be terminated, meaning you are no longer on the plan and the full balance becomes due immediately. The IRS can then pursue collection action: wage garnishment, bank levy, or placing a tax lien on your property.

If you miss a payment, contact the IRS right away. Call 1-800-829-1040 and explain the situation. In many cases, the IRS will allow you to catch up by adding the missed payment to your next month's payment, or they may give you a short grace period to pay. If you are having ongoing trouble making payments, you can request a modification to your plan — lower monthly payments spread over a longer period, for example.

To avoid this problem, set up automatic payments through direct debit when you create your plan. The payment is withdrawn from your bank account on the same day each month, so you do not have to remember to pay. This also qualifies you for the lowest setup fee.

How interest and penalties work on a payment plan

Interest accrues on your unpaid tax balance every single day, even while you are on a payment plan. The IRS charges interest at the federal short-term rate plus 3 percent, compounded daily. This means the longer you take to pay, the more interest you owe on top of your original tax bill.

For example, if you owe $10,000 and set up a five-year plan with $200 monthly payments, you will pay roughly $2,000 to $2,500 in interest by the time the plan ends — depending on the exact interest rate during that period. If you could pay it off in one year instead, you would pay only $400 to $500 in interest. This is why paying faster, even if you are on a plan, saves you money.

Penalties also continue to accrue while you are on a payment plan, though at a slower rate than interest. The failure-to-pay penalty is usually 0.5 percent per month of your unpaid tax. However, if you are making payments on time, the IRS may reduce or remove the penalty. Some taxpayers can also request penalty relief if they have a reasonable cause for owing the tax — for example, a serious illness or job loss. This requires a separate request to the IRS.

Modifying or ending your payment plan early

If your situation changes — you get a bonus, inherit money, or your financial situation improves — you can pay off your plan early without penalty. There is no prepayment fee. In fact, paying early saves you interest, so it is always worth doing if you can.

If your situation gets worse and you cannot afford your current monthly payment, you can request a modification to your plan. Call the IRS at 1-800-829-1040 or log into your IRS account online to request a lower payment amount or longer payment term. The IRS will review your request and may approve it, though this extends how long you owe and increases total interest.

If you cannot pay at all and are experiencing financial hardship, you may be able to request Currently Not Collectible (CNC) status. This temporarily pauses collection action while you are unable to pay, though interest and penalties continue to accrue. CNC is not a forgiveness — the debt remains, and the IRS can resume collection efforts later.

Payment plan vs. other options

A payment plan is not your only option if you cannot pay your tax bill in full. An Offer in Compromise (OIC) lets you settle your tax debt for less than you owe, but it requires proving you cannot pay the full amount and have limited assets. The IRS accepts only about 20 percent of OIC requests, and the process takes six months to two years.

If you are experiencing severe financial hardship, you may may have access to for Currently Not Collectible status, which pauses collection action temporarily. You do not make payments, but interest and penalties continue to grow. This is useful if you are unemployed or facing a temporary crisis, but it is not a long-term solution.

A payment plan is usually the fastest and most straightforward option. It keeps you in compliance with the IRS, prevents collection action, and lets you pay over time. The tradeoff is that you pay interest and penalties on top of your original bill.

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 have not filed, contact a tax professional or the IRS to file your return. Once it is processed and you receive a bill, you can set up a payment plan.

What is the longest payment plan the IRS offers?

Long-term installment agreements can run for several years depending on your balance and circumstances. There is no fixed maximum, but the IRS typically structures plans so you pay off the debt within five to seven years. You can request a longer term if you have a lower income.

Do I still owe penalties and interest if I am on a payment plan?

Yes. Interest accrues daily on your unpaid balance, and penalties continue to apply. However, if you make all payments on time, the IRS may reduce or remove the failure-to-pay penalty. Paying faster saves you money in interest.

Can I change my payment plan after it starts?

Yes. You can request a modification to lower your monthly payment, extend your payment term, or change your payment date. Call the IRS or log into your online account to request a change. The IRS will review and respond within 30 days.

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 speeds up your payoff and saves you interest. You cannot opt out of this — it is automatic.