The Four IRS Payment Plans and How Each One Works

The IRS offers four distinct payment plans, each designed for different tax situations and payment capacities

The IRS does not offer a single payment plan. Instead, it provides four separate arrangements: a short-term extension, an installment agreement, a Currently Not Collectible status, and an Offer in Compromise. Which one you can use depends on how much you owe, how quickly you can pay, and your current financial condition. The IRS determines which plans you are may be able to access for based on the amount owed and your income.

Most people who cannot pay their full tax bill in one payment use an installment agreement, which lets you pay in monthly chunks. Some use a short-term extension if they need just a few extra months. The other two—Currently Not Collectible and Offer in Compromise—are for situations where you cannot pay the full amount, either temporarily or at all.

Key Takeaways

A short-term extension gives you 180 days to pay without a formal agreement, and the IRS charges interest and penalties during that time.
An installment agreement lets you pay monthly over years, with the length depending on how much you owe and what you can afford.
Currently Not Collectible status pauses collection efforts when you have no money to pay, but interest and penalties keep growing.
An Offer in Compromise settles your debt for less than you owe, but requires proof that paying the full amount would cause genuine hardship.
You can set up most payment plans online through IRS.gov, by phone, or by mail, and the process takes days to weeks depending on the plan.

Short-term extension: paying within six months

A short-term extension is the simplest option if you need a few extra months but can pay the full amount. You get up to 180 days from the original due date to pay without setting up a formal agreement. You do not need to contact the IRS or fill out extra forms—the extension is automatic if you pay before the 180-day window closes.

Interest and penalties continue to accrue during this period. The IRS charges interest at a rate set quarterly (currently around 8 percent annually, though this changes). You also owe a failure-to-pay penalty of 0.5 percent per month on the unpaid balance. These costs stack on top of what you already owe, so the longer you wait, the more expensive the debt becomes.

This plan works best if you expect money—a bonus, a tax refund, a settlement—within the next few months. If you cannot pay within 180 days, you need one of the other three options instead.

Installment agreements: paying monthly over time

An installment agreement is a formal arrangement where you pay a fixed monthly amount until your debt is settled. The IRS offers two types: a may provide agreement for smaller debts and a regular agreement for larger ones.

For a may provide installment agreement, you owe $10,000 or less in combined income tax, penalties, and interest. You can set this up online at IRS.gov without speaking to anyone, and the IRS will not reject it based on your income or assets. Monthly payments are typically $25 to $200, depending on how quickly you want to pay off the debt. Interest and penalties still accrue, but you are making regular progress toward zero.

For a regular installment agreement, you owe more than $10,000. The IRS calculates your monthly payment based on how much you owe and what you say you can afford. You fill out Form 433-F (a one-page financial statement) or Form 433-A (a detailed financial form) depending on the amount. The IRS then proposes a payment amount. If you disagree, you can request a hearing before a settlement officer, though most people accept the initial offer.

Monthly payments on a regular agreement typically range from $50 to several hundred dollars, depending on your income and the total debt. The agreement can last anywhere from 24 months to 72 months or longer. Once you set up the agreement, you must make every payment on time. Missing a payment can terminate the agreement, and the IRS can resume collection efforts.

Currently Not Collectible status: pausing collection when you have no income

Currently Not Collectible status is not a payment plan—it is a pause. You use it when you have no money to pay right now and cannot afford any monthly payment. The IRS stops collection efforts: no wage garnishments, no bank levies, no liens placed on your property.

The debt does not disappear. Interest and penalties continue to grow every month. The IRS reviews your status every two years and may contact you to see if your financial situation has improved. If it has, they will ask you to resume payments or set up an installment agreement.

This status lasts until your financial condition changes or the statute of limitations on the debt expires (usually 10 years from the date the IRS assessed the tax). If you receive a large sum of money—an inheritance, a settlement, a bonus—the IRS can use that to pay down the debt. Currently Not Collectible is a temporary holding pattern, not a permanent solution.

Offer in Compromise: settling for less than you owe

An Offer in Compromise lets you settle your tax debt for less than the full amount owed. The IRS accepts the offer only if it believes that is the most it can collect from you given your financial situation. This is the hardest plan to obtain and requires detailed financial documentation.

To may have access to, you must show that paying the full amount would create genuine financial hardship. You submit Form 656 (Offer in Compromise) along with Form 433-A or 433-B (detailed financial statements showing your income, assets, expenses, and debts). The IRS reviews these forms and calculates what it believes you can realistically pay over the next five to ten years. If your offer is lower than that calculation, the IRS will reject it.

The process takes months. The IRS typically responds within 120 to 180 days. While your offer is under review, collection efforts are paused. If the IRS accepts your offer, you pay the agreed amount in a lump sum or over a short period (usually five years or less), and the remaining debt is forgiven. If the IRS rejects your offer, you can appeal or request reconsideration.

How to choose between the four plans

Start by asking yourself three questions: Can you pay the full amount within six months? Can you afford a monthly payment? Do you have assets or income the IRS could take?

If you can pay within six months, use the short-term extension. You avoid the cost of setting up a formal agreement, and you are done quickly.

If you can afford a monthly payment but not the full amount now, use an installment agreement. The may provide agreement is faster and simpler if you owe $10,000 or less. A regular agreement takes longer but works for any amount.

If you have no income and no way to pay right now, request Currently Not Collectible status. This stops collection efforts while you stabilize your finances. You can move to a payment plan later when your situation improves.

If you have genuine financial hardship and believe you cannot ever pay the full amount, explore an Offer in Compromise. This requires extensive documentation and takes months, but it can reduce what you owe significantly.

Setting up a payment plan: where to start

For a may provide installment agreement or short-term extension, go to IRS.gov and use the Online Payment Agreement tool. You enter your Social Security number, the tax year in question, and your proposed monthly payment. The system confirms whether the IRS will accept it. Setup takes minutes, and you receive confirmation when ready.

For a regular installment agreement, you can still start online, but you will need to submit Form 433-F or 433-A. You can mail these forms or upload them through your IRS online account. The IRS then contacts you with a proposed payment amount.

For Currently Not Collectible status or an Offer in Compromise, you must contact the IRS by phone or mail. Call the IRS at 1-800-829-1040 to request Currently Not Collectible status. For an Offer in Compromise, mail Form 656 and your financial forms to the address listed in the form instructions, or submit them through the IRS Offer in Compromise Pre-Qualifier tool on IRS.gov.

Processing times vary. A may provide installment agreement is active within days. A regular agreement takes two to four weeks. Currently Not Collectible status takes one to two weeks. An Offer in Compromise takes four to six months.

What happens if your situation changes

If you are on an installment agreement and your income increases, the IRS may ask you to increase your monthly payment. If your income drops, you can request a modification to lower the payment. You submit a new Form 433-F or 433-A showing your updated financial situation.

If you are on Currently Not Collectible status and your finances improve, the IRS will contact you and ask you to resume payments or set up an agreement. If you receive a large sum of money, the IRS can explore it to your debt automatically.

If your Offer in Compromise is accepted and you miss a payment on the settlement, the IRS can cancel the agreement and resume collection on the original full debt. Missing payments on an installment agreement has the same consequence.

Frequently Asked Questions

Can I set up a payment plan if I owe penalties and interest, not just the tax itself?

Yes. All four payment plans cover the original tax, plus penalties and interest. The interest and penalties continue to grow while you are paying, so the longer your plan lasts, the more you will owe in total. This is why paying faster, when possible, saves money.

What if I cannot afford any of the monthly payments the IRS proposes?

Request Currently Not Collectible status instead. This pauses collection and gives you time to improve your financial situation. You can move to a payment plan later. If you believe you will never be able to pay the full amount, explore an Offer in Compromise, though this requires proof of genuine hardship.

Do I have to pay a fee to set up a payment plan?

Yes, but the fee depends on the plan. A may provide installment agreement costs $31 to $225 depending on how you set it up (online is cheaper). A regular agreement costs $31 to $225. Currently Not Collectible status and Offer in Compromise have no setup fee, though an Offer in Compromise requires a payment with your initial submission.

Can the IRS take my paycheck or bank account while I am on a payment plan?

Once you are on an installment agreement, the IRS typically stops wage garnishments and bank levies. If you are on Currently Not Collectible status, collection efforts are paused entirely. If you miss a payment on either plan, the IRS can resume collection actions. An Offer in Compromise also pauses collection while it is under review.

What if I set up a payment plan and then cannot make a payment?

Contact the IRS when ready. If you miss one payment, the IRS will usually send you a notice. If you miss multiple payments, the agreement can be terminated and collection efforts resume. You can request a modification to lower the payment or switch to Currently Not Collectible status if your situation has changed.

This guide is for general information only and is not medical, financial, legal, or other professional advice. For decisions specific to your situation, consult a qualified professional. See our Editorial Policy.