Yes, you can set up a payment plan, but the terms depend on who you owe and how much

If you owe federal income taxes, the IRS lets you pay in installments instead of a lump sum. The same is true for most state tax agencies. The catch: you'll pay interest and penalties on top of what you owe, the plan itself has a setup fee, and the timeline varies depending on the amount and the type of plan you choose. The IRS has three main options—two that are straightforward and one that requires more paperwork—and each one has different costs and payment terms.

State tax agencies typically offer their own payment plans, separate from the federal system. Some states are stricter about who qualifies and how long you have to pay. If you owe both federal and state taxes, you'll need to set up plans with each one independently.

Key Takeaways

  • The IRS offers short-term plans (up to 180 days) with no setup fee, and long-term installment agreements that charge between $31 and $225 depending on how you pay.
  • Interest and penalties continue to accrue while you're on a payment plan, so the total amount you pay will be higher than what you originally owed.
  • You can set up a federal payment plan online through IRS.gov, by phone, or by mail, and the fastest route is usually the online system.
  • State tax agencies have their own payment plan rules and fees, so contact your state revenue department directly to learn what's available.
  • If you miss a payment on a plan, the IRS can terminate it and demand the full balance, so understanding the terms before you commit is essential.

Federal payment plans: the three main options

The IRS calls its payment plans "installment agreements." The first type is a short-term extension, which gives you up to 180 days to pay without a formal agreement. There's no setup fee, but you still owe interest and penalties. This works if you're close to having the money and just need a few months.

The second type is a long-term installment agreement, which is what most people think of when they hear "payment plan." You commit to monthly payments over a set period—usually three to six years, though longer terms are possible depending on the amount owed. The IRS charges a setup fee ($31 to $225, depending on whether you set it up online or by other means) and continues charging interest and penalties monthly until the debt is paid.

The third option is a Currently Not Collectible status, which temporarily pauses collection efforts if you're in severe financial hardship. This is not a payment plan—you're not making payments—but it stops the IRS from garnishing wages or levying bank accounts while you're in this status. Interest and penalties still accrue, and the IRS can reopen collection efforts later if your situation improves.

How much the plan will cost you

The setup fee is the smallest part of the cost. If you set up a long-term plan online through IRS.gov, the fee is $31. If you set it up by phone or mail, it's $225. For low-income taxpayers (those below 250% of the federal poverty line), the fee drops to $31 regardless of the method.

The real cost is interest and penalties. The IRS charges interest at a rate set quarterly—currently around 8% per year, though this changes. On top of that, you owe a failure-to-pay penalty of 0.5% per month on any unpaid balance. If you owed $5,000 and set up a 60-month plan, you could end up paying $1,500 to $2,000 more by the time the plan ends, depending on how long you take and when you started.

Some payment plans let you reduce the interest rate slightly if you set up automatic monthly withdrawals from your bank account. The IRS calls this a "direct debit installment agreement," and it saves you $31 on the setup fee compared to other methods.

Setting up a federal payment plan

The fastest way is through the IRS Online Payment Agreement tool at IRS.gov. You'll need your Social Security number, date of birth, and the tax year you owe for. The system will ask how much you can pay each month and calculate how long the plan will take. If the IRS approves it (which usually happens when ready for smaller amounts), you can start making payments within days.

If you can't use the online system or prefer to speak to someone, you can call the IRS at 1-800-829-1040. Have your tax return and notice of what you owe ready. The IRS will walk you through the options and set up the plan over the phone. Processing takes longer this way—usually a few weeks.

You can also mail Form 9465, Installment Agreement Request, to the IRS address listed on your tax notice. Include a check for the first payment if you want to start right away. Mail processing is the slowest option and can take four to six weeks.

State tax payment plans

Most states offer payment plans for state income tax debt, but the rules vary widely. Some states let you set up a plan online; others require you to contact the state revenue department by phone or mail. A few states charge setup fees similar to the IRS; others don't charge anything upfront but still add interest and penalties.

To find your state's payment plan options, search "[Your State] Department of Revenue payment plan" or "[Your State] tax payment arrangement." The state revenue website will have the specific form you need and the contact information for their collections department. If you owe both federal and state taxes, you'll need to set up separate plans with each agency.

Some states are more flexible than the IRS about extending payment timelines, especially if you're in financial hardship. Others are stricter and may require you to pay within a shorter window. Contact your state directly to understand what's available before you commit to a federal plan.

What happens if you miss a payment

If you miss a payment on an IRS installment agreement, the IRS will typically send you a notice giving you 30 days to catch up. If you don't, the IRS can terminate the agreement and demand the full remaining balance when ready. At that point, the IRS can pursue collection through wage garnishment, bank levies, or liens on your property.

The same applies to state payment plans. Missing payments gives the state grounds to end the agreement and pursue collection through whatever means the state law allows. If you know you're going to miss a payment, contact the IRS or your state revenue department before the due date. They may be willing to adjust the plan or give you a brief extension rather than terminate it outright.

Alternatives if a payment plan won't work

If the monthly payment required by a standard plan is more than you can afford, you have a few other options. You can request an Offer in Compromise, which is a formal request to settle the debt for less than you owe. This requires detailed financial documentation and the IRS rarely accepts these, but it's worth exploring if you're in severe hardship. The IRS charges a $225 process fee (non-refundable if denied).

You can also request Currently Not Collectible status, which temporarily pauses collection efforts. This doesn't reduce what you owe, but it stops the IRS from taking collection action while you're in hardship. The debt remains, and interest continues to accrue, but you're not making payments.

If you owe a small amount (under $25,000 for federal taxes), a short-term extension may be your best option since there's no setup fee and you have up to 180 days to pay.

Frequently Asked Questions

Can I set up a payment plan if I'm behind on payments from a previous plan?

It depends on how far behind you are and why. If you've missed one or two payments, the IRS may work with you to modify the existing plan rather than terminate it. If you're significantly behind, the IRS will likely terminate the plan and demand the full balance. Contact the IRS when ready if you're struggling to make payments—waiting makes it worse.

Will a payment plan stop the IRS from garnishing my wages or levying my bank account?

Yes, once you have an approved installment agreement in place, the IRS will stop active collection efforts like wage garnishment or bank levies. However, if you default on the plan, the IRS can resume collection when ready. The agreement is only as good as your ability to stick to it.

Can I change my monthly payment amount after the plan starts?

Yes, you can request a modification through the IRS Online Payment Agreement tool or by contacting the IRS directly. If your financial situation improves, you can increase payments to finish the plan faster. If it gets worse, you can request a lower payment, though this extends the timeline and increases the total interest you'll pay.

Do I still owe penalties and interest while I'm on a payment plan?

Yes. Interest accrues daily at a rate set by the IRS each quarter, and the failure-to-pay penalty continues at 0.5% per month. The only way to stop penalties is to pay the debt in full. This is why paying as quickly as you can afford is usually better than stretching the plan over many years.

What if I can't afford any monthly payment right now?

Request Currently Not Collectible status instead. This temporarily pauses collection efforts while you're in financial hardship, though the debt remains and interest continues to accrue. Once your situation improves, the IRS can reopen the case and pursue collection or set up a payment plan at that time.