Yes, you can set up a payment plan for taxes you owe, but the terms depend on which tax and which agency is owed
If you owe federal income tax, you can arrange to pay in installments through the IRS. If you owe state income tax, your state's tax agency runs its own payment plan program with different rules and timelines. If you owe property tax or sales tax, the process varies by county or municipality. The key difference: federal plans are available to almost anyone who owes, but state and local plans may have income limits, debt limits, or other conditions.
A payment plan does not reduce what you owe or stop interest and penalties from accruing. It straightforward lets you spread the payments over time instead of paying the full amount at once. The IRS charges a setup fee (currently $31 to $225 depending on the plan type) and continues to charge interest on the unpaid balance until it is gone.
Key Takeaways
- The IRS offers short-term plans (120 days or less) with lower setup fees and long-term installment agreements (up to 72 months) with higher fees but more time to pay.
- You can request a federal payment plan online through IRS.gov, by phone at 1-800-829-1040, or by mail using Form 9465, and the IRS will tell you within days whether you are accepted.
- State tax agencies have their own payment plan rules, income thresholds, and process processes — contact your state's department of revenue to learn what is available.
- Interest and penalties continue to accrue on the unpaid balance for the entire length of the plan, so the total amount you pay will be higher than the original debt.
- If you miss a payment on a federal plan, the IRS can terminate the agreement and demand the full remaining balance when ready.
Federal income tax payment plans through the IRS
The IRS offers two main types of payment plans: a short-term plan and a long-term installment agreement. A short-term plan covers debts you can pay off within 120 days. The setup fee is $31, and you do not need to provide detailed financial information. This plan is useful if you expect a bonus, tax refund, or other money within a few months.
A long-term installment agreement is for debts you cannot pay within 120 days. The setup fee ranges from $31 to $225 depending on how you set it up (online is cheaper than by phone or mail) and whether you choose automatic payments from your bank account. You can request monthly payments as low as $25, though the IRS will calculate a suggested amount based on what you owe and how long you want to take. Most agreements run 24 to 72 months.
To request a federal plan, use the IRS Online Payment Agreement tool at IRS.gov, call 1-800-829-1040, or mail Form 9465 (Installment Agreement Request) with your tax return or separately. The IRS will respond within 30 days. If you are approved, you will receive a notice showing your monthly payment amount, due date, and the fee charged to your account.
State income tax payment plans
Most states that collect income tax allow payment plans, but the rules are not uniform. Some states cap the amount you can owe and still be may be able to access — for example, a state might only offer plans for debts under $10,000 or $25,000. Others require you to meet income thresholds or prove financial hardship. A few states require you to pay a portion upfront before the plan begins.
To find your state's program, contact your state's department of revenue directly. You can usually find the phone number and website through a search for "[your state] department of revenue payment plan" or "[your state] tax payment arrangement." Some states let you request a plan online; others require a phone call or written request. Processing time varies from a few days to several weeks.
Like federal plans, state plans do not stop interest and penalties from accruing. The total you pay will exceed the original debt. If you miss a payment, the state can terminate the plan and pursue collection action, including wage garnishment or bank levy.
Property tax and local tax payment plans
Property tax payment plans are usually managed by your county assessor's office or tax collector's office, not a state agency. Many counties allow you to pay property taxes in installments — often quarterly or semi-annually — as a standard practice rather than as a special arrangement. If you owe back property taxes, contact your county tax collector to ask whether a payment plan is available and what the terms are.
Sales tax payment plans are less common and typically only available to businesses that owe sales tax to the state. If you are an individual who owes back sales tax (usually because you operated a business without collecting it), contact your state's department of revenue to ask what options exist.
What happens to interest and penalties during a payment plan
Interest accrues daily on the unpaid balance, whether you are on a payment plan or not. The federal interest rate is set quarterly and is currently around 8 percent per year, though it changes. Penalties also continue to accrue — typically 0.5 percent per month of the unpaid tax, up to 25 percent total.
This means that if you owe $5,000 and set up a 60-month plan, you will pay significantly more than $5,000 by the time the plan ends. The exact amount depends on the interest rate during each month of the plan. You can use the IRS payment plan calculator on IRS.gov to estimate what your total payments will be before you commit to a plan.
What disqualifies you or ends a payment plan
The IRS will not approve a long-term installment agreement if you have not filed all required tax returns for the past six years. You also cannot have an active installment agreement with the IRS for a different tax year and be in default on it. If you are self-employed and owe self-employment tax, you must be current on quarterly estimated tax payments to stay on a plan.
A payment plan ends when ready if you miss a payment by more than 30 days. The IRS will send a notice of default, and you then have 30 days to bring the account current or request a new agreement. If you do not respond, the IRS can terminate the plan and demand the full remaining balance. The same rules explore to state and local payment plans — missing a payment is grounds for when ready termination.
Alternatives if a payment plan is not available or affordable
If you cannot afford the minimum monthly payment on a payment plan, you may be able to request an Offer in Compromise from the IRS, which allows you to settle the debt for less than you owe. This is difficult to obtain and requires detailed financial documentation, but it is an option if your circumstances are severe. You can also request Currently Not Collectible status, which temporarily pauses collection action while you deal with financial hardship, though interest and penalties continue to accrue.
Some people work with a tax professional or enrolled agent to negotiate with the IRS on their behalf, though this costs money upfront. If you cannot pay at all and have no income or assets, the IRS may eventually write off the debt after the statute of limitations expires (usually 10 years), but this is not a strategy — it is what happens when collection is not possible.
Frequently Asked Questions
Can I set up a payment plan if I owe back taxes from multiple years?
Yes. The IRS can combine multiple tax years into a single installment agreement. When you request a plan, you will provide the total amount owed across all years, and the IRS will calculate a single monthly payment. State agencies vary — some combine years and some require separate plans for each year. Ask your state's tax agency which applies to you.
What if I cannot afford the monthly payment the IRS suggests?
You can request a lower monthly payment when you explore, and the IRS will work with you if the amount is reasonable. The minimum is typically $25 per month, though the IRS may accept lower amounts in cases of genuine hardship. If you cannot afford even $25 monthly, you may be may be able to access for Currently Not Collectible status instead of a payment plan.
Do I still get a refund if I am on a payment plan?
No. If you are on a federal payment plan and receive a tax refund, the IRS will automatically explore it to your outstanding tax debt. The same applies to state plans. This is called "offset" and happens without your consent. If you expect a refund, factor this into your planning.
Can I pay off a payment plan early without penalty?
Yes. You can pay off a federal or state payment plan at any time without penalty. Interest and penalties will stop accruing once the debt is paid in full. There is no prepayment fee or early termination fee.
What if my financial situation changes while I am on a payment plan?
You can request to modify your payment plan if your income or expenses change significantly. Contact the IRS or your state tax agency and explain the change. They may lower your monthly payment, extend the plan, or in rare cases, consider you for other relief options. Do not straightforward stop paying — contact them first.