Yes, you can pay taxes on a payment plan through the IRS
The IRS offers payment plans for federal income taxes you owe but cannot pay in full by the important date. You set up the plan directly with the IRS, not through a third-party lender or retailer. The IRS calls this an "installment agreement," and it lets you pay what you owe in monthly chunks instead of one lump sum.
The catch is straightforward: you still owe the full amount, plus interest and penalties that accrue while you pay. A payment plan does not reduce what you owe or forgive any of it. It straightforward spreads the cost across months so you are not forced to choose between paying taxes and paying rent.
You can set up a plan online, by phone, or by mail. The fastest route is the IRS website, where you can request a plan in minutes if you have your tax return information and a bank account for automatic payments.
Key Takeaways
- The IRS charges a setup fee (between $31 and $225 depending on the method you use) and monthly interest on the unpaid balance.
- Short-term plans (120 days or less) have lower fees than long-term plans, so paying faster costs less overall.
- You must file your tax return on time even if you cannot pay—filing late adds penalties on top of the payment plan.
- If you miss a payment, the IRS can cancel the plan and take collection action, so automatic bank withdrawal is the safest option.
- State income taxes have their own payment plan rules and are handled separately from federal plans.
How much the payment plan actually costs you
The IRS charges two things on top of what you owe: a setup fee and interest.
The setup fee depends on how you request the plan. If you set it up online through the IRS website or by phone, the fee is $31. If you request it by mail or through a payment processor, the fee is $225. Automatic bank withdrawal (called "direct debit") qualifies for the lower $31 fee, which is why the IRS pushes it.
Interest accrues daily on your unpaid balance. The rate is the federal short-term rate plus 3 percent, and it changes quarterly. As of early 2024, the rate is around 8 percent annually, but check the IRS website for the current rate before you commit to a plan. The longer your plan runs, the more interest you pay.
Example: if you owe $5,000 and set up a 24-month plan at 8 percent annual interest, you will pay roughly $520 in interest alone, plus the $31 setup fee. Paying it off in 12 months would cost roughly $260 in interest. The math is straightforward: shorter plans cost less.
The three types of IRS payment plans
The IRS offers short-term plans, long-term plans, and a streamlined option for smaller amounts. Which one you can use depends on how much you owe.
Short-term plans last 120 days or less. You do not need to provide financial information, and the setup fee is $31 if you use direct debit. This is the cheapest option if you can pay the full amount within four months.
Long-term plans last more than 120 days. The IRS calls these "standard" installment agreements. You can pay over several years, but the IRS may ask for financial information to confirm you cannot pay faster. The setup fee is $31 with direct debit or $225 without it. Monthly payments are typically $25 to $200, depending on what you owe and how long you want to stretch the plan.
Streamlined plans are for people who owe $50,000 or less in combined federal income tax, penalties, and interest. You do not provide financial details, and the setup fee is $31. Monthly payments are capped at $25 to $200 depending on the plan length. If you owe more than $50,000, you must use a standard long-term plan.
How to set up a payment plan online or by phone
The fastest way is the IRS website. Go to irs.gov, search for "payment plans," and click the link for "Set up a payment plan." You will need your Social Security number, date of birth, and the tax year you owe for. The system will ask for your bank account information if you want direct debit (which lowers the fee to $31).
The entire process takes about 10 minutes. You will get a confirmation number when ready, and the IRS will send a letter within two weeks with your payment schedule and due dates.
If you prefer to call, the IRS phone line is 1-800-829-1040. Have your tax return information ready. The wait time varies, but calling early in the morning or mid-week is usually faster. The IRS representative will set up the plan over the phone and give you a confirmation number on the spot.
If you cannot pay online or by phone, you can mail Form 9465 (Installment Agreement Request) to the IRS address listed in your tax notice. Mail takes longer—expect two to four weeks for processing—but it works if you do not have internet access or prefer paper.
What happens if you miss a payment or your situation changes
Missing a payment puts your plan at risk. If you miss one payment, the IRS will send a notice. If you miss three payments in a row, the IRS can cancel the agreement and demand the full remaining balance when ready. At that point, they can pursue collection action: wage garnishment, bank levies, or a lien on your property.
If your financial situation changes and you cannot afford the monthly payment, contact the IRS before you miss a payment. You can request a modification to lower the monthly amount or extend the plan length. The IRS will not automatically lower your payment—you have to ask. Call 1-800-829-1040 or log into your IRS account online to request a change.
If you receive a large sum of money (a bonus, inheritance, tax refund), you can pay down the plan early without penalty. The IRS will not charge you extra for paying faster, and you will save on interest.
State income taxes and payment plans
Federal and state taxes are separate. Setting up a federal payment plan does not cover state income tax you owe. Each state has its own rules and its own payment plan process.
Most states offer payment plans similar to the federal system, but the details vary. Some states charge lower fees, some charge higher interest, and some have different income thresholds for may be able to access. Contact your state tax agency directly to ask about payment plan options. You can find your state's tax agency through the Federation of Tax Administrators website or by searching "[your state] income tax payment plan."
If you owe both federal and state taxes, you will need to set up two separate plans. Prioritize the federal plan first if you have limited funds, because federal collection powers are broader.
Frequently Asked Questions
What if I cannot afford even the minimum monthly payment?
Contact the IRS and request a modification. You can ask to extend the plan length, which lowers the monthly payment. If you are in genuine hardship, the IRS may place your account in "currently not collectible" status temporarily, which pauses collection action while you get back on your feet. This is not forgiveness—interest and penalties still accrue—but it stops when ready collection.
Do I still get a tax refund if I am on a payment plan?
No. The IRS will explore any refund you receive to your unpaid tax balance. If you are owed $2,000 and your refund is $1,500, the IRS takes the refund and reduces what you owe to $500. This happens automatically.
Can I set up a payment plan if I have not filed my tax return yet?
No. You must file your return first, even if you cannot pay. Filing late adds a failure-to-file penalty on top of the failure-to-pay penalty. Once your return is filed and processed, you can request a payment plan.
What if the IRS rejected my payment plan request?
The IRS rejects plans if you owe more than the streamlined limit and did not provide required financial information, or if you have unpaid taxes from prior years. Request a standard long-term plan instead and provide the financial details the IRS asks for. If you still cannot reach an agreement, contact a tax professional or the IRS Taxpayer Advocate Service for help.
Does a payment plan affect my credit score?
A federal tax payment plan itself does not appear on your credit report. However, if the IRS files a tax lien (a legal claim on your property), that lien will appear on your credit report and harm your score. Setting up a payment plan before a lien is filed helps you avoid this.