Yes, the IRS offers payment plans if you cannot pay your full tax bill when it is due
If you owe federal income tax and do not have the money to pay it all on April 15 (or your filing deadline), the IRS lets you set up a payment plan — also called an installment agreement. You pay what you owe in smaller monthly amounts instead of one lump sum. The IRS charges interest and a setup fee, but a payment plan keeps you from defaulting on your debt and triggering collection action.
Payment plans come in two main types: short-term plans for people who can pay within 180 days, and long-term plans for people who need more time. Which one you use depends on how much you owe and how quickly you can pay it back.
Key Takeaways
- The IRS offers both short-term payment plans (up to 180 days) with no setup fee and long-term installment agreements (up to 72 months) with a setup fee of $31 to $225.
- You can set up a payment plan online through IRS.gov, by phone at 1-800-829-1040, or by mail using Form 9465.
- Interest accrues daily on your unpaid balance, and the IRS charges a failure-to-pay penalty of 0.5% per month until the debt is settled.
- Missing a payment on your plan can result in the agreement being cancelled and collection action beginning immediately.
- State tax agencies also offer payment plans, but the terms and fees vary by state.
Short-term payment plans: 180 days or less
A short-term plan is the fastest route if you can pay your entire bill within six months. You do not pay a setup fee, and the process is simpler than a long-term agreement. You simply tell the IRS when you will have the money and make a single payment or a few payments to clear the debt.
To set up a short-term plan, call the IRS at 1-800-829-1040 or use the Online Payment Agreement tool at IRS.gov. You will need your Social Security number, the tax year in question, and the amount you owe. The IRS will confirm your plan by mail within two weeks.
Even though there is no setup fee, interest still accrues on your unpaid balance. The current federal interest rate is 8% per year (as of 2024), charged daily. You also still owe the failure-to-pay penalty of 0.5% per month on any unpaid tax.
Long-term installment agreements: paying over months or years
If you need more than 180 days to pay, you set up a long-term installment agreement. The IRS allows you to spread payments over up to 72 months (six years), depending on how much you owe. The monthly payment amount depends on your total debt and the timeframe you choose.
A long-term agreement costs money to set up. The setup fee ranges from $31 to $225, depending on how you apply. If you set up the agreement online or by phone, the fee is usually $31 to $225. If you mail in Form 9465, the fee may be lower. The IRS will add the setup fee to your total debt, so you pay it off as part of your monthly payments.
Once your agreement is in place, you make the same payment every month until the debt is paid off. If your income changes or you face hardship, you can ask the IRS to modify the payment amount, but you must request this in writing.
How to set up a payment plan with the IRS
You have three ways to start a payment plan: online, by phone, or by mail. Online is the fastest and requires no human interaction.
Online: Go to IRS.gov and use the Online Payment Agreement tool. You will need your Social Security number, date of birth, and the tax year you owe for. The tool will show you available payment amounts and let you choose a monthly payment that fits your budget. You will get immediate confirmation and can print a copy of your agreement.
By phone: Call the IRS at 1-800-829-1040 during business hours (Monday through Friday, 7 a.m. to 7 p.m. your local time). A representative will walk you through the agreement and confirm the terms. You will receive written confirmation by mail within two weeks.
By mail: Fill out Form 9465 (Installment Agreement Request) and mail it with your tax return or separately to the IRS address for your state. Include a note explaining why you cannot pay in full. The IRS will respond by mail within 30 days. This method takes longer but works if you do not have internet access or prefer a paper trail.
Interest, penalties, and what they cost you
A payment plan does not erase interest or penalties — it only spreads out the payment. You still owe the full amount plus charges that grow every day your debt sits unpaid.
The failure-to-pay penalty is 0.5% of your unpaid tax per month (or part of a month). If you owe $5,000 and do not pay for a year, the penalty alone adds $300 to your debt. This penalty stops accruing once your payment plan is complete.
Interest is charged daily on your unpaid balance. The rate is set by the IRS each quarter and is currently 8% per year (as of 2024), but it changes. Interest continues to accrue for as long as you have an unpaid balance, even after your payment plan ends if you miss payments.
The longer your payment plan, the more interest you pay overall. A $10,000 debt paid over 72 months will cost significantly more in interest than the same debt paid over 12 months. When you set up your plan, the IRS will show you the total cost including interest and penalties.
What happens if you miss a payment or cannot afford your plan
If you miss a payment, the IRS will send you a notice. You typically have 30 days to make the payment before the agreement is cancelled. Once cancelled, the full unpaid balance becomes due immediately, and the IRS can begin collection action — wage garnishment, bank levies, or a tax lien on your property.
If your financial situation changes and you cannot afford your monthly payment, contact the IRS before you miss a payment. You can request a modification to lower your monthly amount, though this will extend your payoff date. Call 1-800-829-1040 or submit a written request explaining your hardship. The IRS may also place your account in Currently Not Collectible status temporarily if you are facing severe hardship, which pauses collection action while interest and penalties continue to accrue.
State tax payment plans
Most states offer their own payment plans for state income tax debt, but the terms vary widely. Some states allow plans up to 60 months; others cap them at 24 months. Setup fees range from nothing to several hundred dollars depending on the state.
To find your state's payment plan option, search "[your state] tax payment plan" or contact your state's tax department directly. Many states let you set up a plan online through their tax website. A few states use the same IRS payment plan for both federal and state debt if you owe both, but most require separate agreements.
Frequently Asked Questions
Can I set up a payment plan if I have not filed my tax return yet?
You should file your return first, even if you cannot pay. Filing starts the clock on your debt and lets you set up a payment plan. If you file late, you will owe additional penalties, so filing on time (even without payment) is better than waiting.
What if I owe back taxes from multiple years?
You can set up a single payment plan that covers all years you owe, or separate plans for each year. The IRS will work with you to combine them into one monthly payment if that is easier. Mention all years you owe when you apply.
Do I still have to file my tax return every year if I am on a payment plan?
Yes. A payment plan only covers the debt you already owe. You must continue to file your return on time each year and pay any new tax due. Failing to file or pay new tax while on a plan can result in the agreement being cancelled.
Can I pay off my plan early without a penalty?
Yes. You can pay off your entire balance at any time without penalty. Paying early saves you money on interest, since interest stops accruing once the debt is paid in full.
What is the difference between a payment plan and an Offer in Compromise?
A payment plan lets you pay your full debt over time. An Offer in Compromise lets you settle for less than you owe, but it is much harder to get and requires proving you cannot pay the full amount. Most people with a payment plan option should use that instead.