Yes, the IRS and most states offer payment plans if you cannot pay your full tax bill at once

If you owe taxes and do not have the money to pay in full by the deadline, you can set up a payment plan with the IRS or your state tax authority. This lets you pay what you owe in smaller monthly installments instead of one lump sum. The IRS calls these installment agreements. You will still owe interest and penalties on the unpaid balance, but a payment plan stops the IRS from taking collection action while you are making regular payments.

Payment plans come in different types depending on how much you owe and how you want to set it up. Some are short-term (120 days or less), some are long-term (several years), and some are automatic deductions from your bank account. The faster you pay, the less interest you will accumulate. State tax agencies offer similar plans, though the rules and fees vary by state.

Key Takeaways

  • The IRS offers short-term plans (up to 120 days) with no setup fee and long-term installment agreements (up to 72 months) with a one-time fee of $31 to $225 depending on how you set it up.
  • You can set up a plan online through IRS.gov, by phone at 1-800-829-1040, or by mail using Form 9465, and the IRS will tell you immediately whether you may have access to.
  • Automatic bank deductions (called direct debit) lower your setup fee and are the fastest way to get approval.
  • State tax agencies run their own payment plan programs with different fees and terms, so contact your state revenue office to learn what is available.
  • Interest and penalties keep adding up while you are on a payment plan, so paying faster saves you money even if your monthly payment is smaller.

Short-term payment plans (120 days or less)

A short-term payment plan is the simplest option if you can pay off what you owe within four months. You do not need to fill out any forms or pay a setup fee. You just contact the IRS and tell them when you will have the money, and they will hold off collection action during that time.

Short-term plans work best if you are expecting a bonus, a refund from another source, or money from selling something. The IRS will not charge you a setup fee, but interest and penalties will still accrue on the unpaid balance. You can request a short-term plan by calling 1-800-829-1040 or by logging into your IRS account at IRS.gov.

Long-term installment agreements (multiple years)

If you need more than 120 days to pay, you will set up a long-term installment agreement. These typically run from 24 to 72 months, depending on how much you owe and how much you can pay each month. The IRS will calculate a monthly payment that fits your situation.

Long-term agreements have a one-time setup fee that ranges from $31 to $225. The fee depends on how you set up the plan: if you use automatic bank deduction (direct debit), the fee is lower ($31). If you pay by check or money order, the fee is higher ($225). If you set it up online or by phone without direct debit, the fee falls in the middle. Once your agreement is approved, the IRS will send you a notice showing your monthly payment amount and due date.

You can request a long-term plan online at IRS.gov, by phone, or by mailing Form 9465 (Installment Agreement Request) with your tax return or separately. Online requests are processed fastest — often within 24 hours.

How to set up a payment plan with the IRS

Online (fastest): Go to IRS.gov, log into your account, and select "Set Up a Payment Plan." You will answer questions about your income and expenses, and the IRS will show you available payment amounts. You can choose direct debit to lower your setup fee. Approval usually happens within 24 hours.

By phone: Call 1-800-829-1040 during business hours. A representative will discuss your situation and help you choose a payment amount. They can set up the plan on the call. You can arrange direct debit or pay by check.

By mail: Fill out Form 9465 and attach it to your tax return when you file, or send it separately to the IRS address shown in the form instructions. Processing takes longer by mail — typically two to four weeks.

Before you contact the IRS, have your Social Security number, the tax year you owe for, and an estimate of how much you can pay each month. If you have already received a notice from the IRS, have that handy too.

State tax payment plans

Most states offer payment plans for state income tax debt, but the rules and fees vary widely. Some states charge no setup fee, while others charge $25 to $100. Some allow plans up to 60 months, others only 36. Contact your state's revenue or tax department to learn what is available.

You can usually find your state's payment plan information on its tax website. Search for "[your state] tax payment plan" or "[your state] installment agreement." Some states let you set up a plan online, while others require a phone call or mailed form. If you owe both federal and state taxes, you will need to set up separate plans with each.

What happens to interest and penalties while you are on a payment plan

Interest and penalties do not stop while you are making payments. The IRS charges interest (currently around 8 percent per year, though it changes quarterly) on any unpaid balance. You also owe a failure-to-pay penalty of 0.5 percent per month on the unpaid amount, unless you have a reasonable cause the IRS accepts.

This means the longer your payment plan runs, the more interest you will pay overall. A payment plan of $200 per month over 36 months will cost you more in interest than a plan of $300 per month over 24 months, even though your monthly payment is lower. If you can afford a higher monthly payment, you will save money in the long run.

What to do if you cannot afford the monthly payment

If your circumstances change and you cannot afford your monthly payment, contact the IRS right away. Do not skip payments — that can end your agreement and trigger collection action. Call 1-800-829-1040 or log into your IRS account to request a modification.

The IRS can lower your monthly payment, extend your plan, or temporarily pause payments if you are in financial hardship. You may need to provide updated financial information. Modifying a plan usually takes a few weeks, so reach out as soon as you know there is a problem.

Frequently Asked Questions

Can I set up a payment plan if I have already received a notice from the IRS?

Yes. In fact, if you have received a notice, you should set up a plan as soon as possible to stop collection action. Bring the notice with you when you contact the IRS — it will speed up the process. The notice will show a deadline for responding; setting up a plan before that date is important.

What is the difference between a payment plan and an offer in compromise?

A payment plan lets you pay what you actually owe over time. An offer in compromise is a request to settle your debt for less than the full amount. Offers are much harder to get approved and require detailed financial paperwork. A payment plan is the right choice if you can eventually pay what you owe.

Will a payment plan hurt my credit score?

A payment plan itself does not appear on your credit report. However, if the IRS filed a tax lien before you set up the plan, that lien will show on your credit report and will hurt your score. Setting up a plan does not remove a lien, but it can stop the IRS from filing one if you do not have one yet.

Can I pay off my plan early without a penalty?

Yes. You can pay off your installment agreement at any time without penalty. Paying early will save you interest. If you come into money unexpectedly, paying down or paying off your plan is a smart move.

Do I need to file taxes every year while I am on a payment plan?

Yes. You must continue to file your tax return on time every year, even while you are paying off a prior year's debt. If you do not file, the IRS can end your payment plan and take collection action.