Yes, you can set up a payment plan, but the type depends on who you owe

If you owe federal income taxes, the IRS lets you pay in installments through a formal arrangement called an installment agreement. If you owe state income taxes, your state's tax agency has its own payment plan process — the rules and options vary by state. The key difference: federal plans are standardized and available to most people, while state plans depend entirely on which state you live in.

The reason to set up a plan rather than ignore the debt is straightforward. Unpaid taxes accrue interest (a percentage charge on what you owe) and penalties (additional fees for not paying on time). A payment plan stops the penalties from growing while you pay, though interest continues to accrue on the unpaid balance.

You do not have to wait for a bill or notice to request a plan. You can contact the IRS or your state tax agency directly and ask about payment options before they contact you — and doing so early often works in your favor.

Key Takeaways

  • The IRS offers installment agreements for federal taxes, which you can request online, by phone, or by mail without waiting for a notice.
  • State tax agencies have their own payment plan rules, so you will need to contact your specific state's tax department to learn what is available.
  • Monthly payments are typically small enough to fit a household budget, but interest and penalties continue to accrue until the full amount is paid.
  • Setting up a plan before the IRS or state contacts you can prevent additional collection actions like wage garnishment or bank levies.

How federal installment agreements work

When you owe the IRS, you can request an installment agreement — a formal arrangement to pay your tax debt in monthly installments. The IRS has three main types: short-term, long-term, and partial payment agreements. Most people use a long-term agreement, which lets you spread payments over several years.

The monthly payment amount depends on how much you owe and how long you want to take to pay it. The IRS will work with you to set a payment that fits your budget, though a longer timeline means more interest accrues. For example, if you owe $5,000, you might pay $150 per month over three years, or $100 per month over five years — the exact numbers depend on your situation and what you propose.

Once your agreement is approved, you make monthly payments on a date you choose. You can pay by automatic bank withdrawal (which the IRS prefers and sometimes charges less for), by check, by credit or debit card, or through the IRS payment portal. Missing a payment can end the agreement, so set up a reminder or automatic payment if you can.

Setting up a federal payment plan with the IRS

You have three ways to request a federal installment agreement: online through the IRS website, by phone, or by mail. The online route is fastest — you can set up a plan in minutes if you have your Social Security number, filing status, and tax year information.

To request online, go to the IRS website and look for the "Online Payment Agreement" tool. You will enter basic information about your tax debt and propose a monthly payment amount. The IRS will tell you when ready whether your request is approved. If you are approved, you will receive a confirmation number and details about when your first payment is due.

If you prefer to call, the IRS phone number is on any tax notice you have received, or you can find it on the IRS website. Have your Social Security number, filing status, and the tax year you owe for ready when you call. By mail, you can send Form 9465 (Installment Agreement Request) to the IRS address listed in your tax notice.

There is a setup fee for installment agreements, which varies depending on how you request it and your income level. Online requests typically cost less than phone or mail requests. The fee is usually between $31 and $225, depending on your circumstances. The IRS will tell you the exact fee before you finalize the agreement.

State tax payment plans

Every state that has an income tax has its own process for payment plans, and the rules differ significantly. Some states offer payment plans similar to the federal system; others have stricter rules or fewer options. You will need to contact your state's tax agency directly to learn what is available to you.

To find your state's tax agency, search online for "[your state] department of revenue" or "[your state] tax commission." Once you find the agency, look for a section on payment plans, payment options, or what to do if you cannot pay in full. Most state agencies have an online payment plan request tool, a phone number, or a mailing address where you can submit a request.

Some states require you to have received a notice before you can set up a plan; others let you request one proactively. Some charge a setup fee; others do not. The monthly payment amounts and timeline options also vary. Because state rules are so different, calling your state tax agency is often the fastest way to understand your options.

What happens to interest and penalties while you pay

Setting up a payment plan stops failure-to-pay penalties from growing, but interest continues to accrue on the unpaid balance. Interest is a percentage of what you owe, set by law and recalculated quarterly. As of 2024, federal interest rates are in the range of 8 percent per year, though this changes. Your state may have a different interest rate.

This means that even while you are making monthly payments, the total amount you owe is slowly growing. The longer your payment plan, the more interest you will pay overall. If you can pay faster, you will pay less interest — but the plan exists so you can pay at a pace that works for your budget.

Some people use a payment plan as a temporary measure while they save money to pay the full amount. If you come into money — a bonus, a tax refund, an inheritance — you can pay off the remaining balance early without penalty. Doing so stops the interest from accruing further.

What to do if you cannot afford the monthly payment

If the IRS or your state proposes a monthly payment that is too high, you can ask for a lower amount. The IRS will work with you to set a payment that fits your budget, though this extends the timeline and increases the total interest you pay. You will need to provide information about your income and expenses so the agency can understand what you can afford.

If your financial situation changes — you lose income, face a medical emergency, or have other hardship — you can request a modification to your agreement. Contact the IRS or your state tax agency and explain the change. They may lower your monthly payment, pause payments temporarily, or adjust the timeline.

If you are in severe financial hardship, the IRS has a process called Currently Not Collectible status, which temporarily pauses collection actions while you recover financially. This is not forgiveness — the debt remains and interest continues to accrue — but it stops wage garnishments and bank levies while you get back on your feet. Your state may have a similar option.

What happens if you miss a payment

Missing a single payment does not automatically end your agreement, but it can trigger collection actions. If you miss a payment, contact the IRS or your state tax agency as soon as you realize it. Explain the situation and ask about making up the missed payment or adjusting your plan.

If you miss payments repeatedly or fall significantly behind, the IRS or state may terminate your agreement and pursue other collection methods, such as wage garnishment (taking money directly from your paycheck) or a bank levy (freezing your bank account). These actions are more disruptive than a payment plan, so staying current on payments is important.

If you know you will miss a payment, call ahead rather than waiting. Agencies are often willing to work with you if you communicate proactively.

Frequently Asked Questions

Can I set up a payment plan if I have not filed my tax return yet?

You should file your return first, even if you cannot pay the full amount. Once you file, you can request a payment plan for what you owe. Filing on time (or requesting an extension) also reduces penalties, so filing before requesting a plan is always the better move.

Will setting up a payment plan hurt my credit score?

A payment plan itself does not appear on your credit report. However, if the IRS or state files a tax lien (a legal claim against your property) because you did not pay, that lien can appear on your credit report and affect your score. Setting up a plan before a lien is filed helps you avoid this.

Can I have both a federal and state payment plan at the same time?

Yes. Federal and state taxes are separate debts, so you can have an installment agreement with the IRS and a separate payment plan with your state. You will make payments to each agency independently.

What if I get a tax refund while I am on a payment plan?

The IRS will automatically explore your refund to your remaining tax debt. This reduces what you owe and can shorten your payment plan. Some states do the same; others let you choose. Check with your state tax agency about their policy.

How long does it take to get approved for a payment plan?

Online requests are usually approved within minutes. Phone and mail requests typically take one to two weeks. Once approved, you will receive written confirmation with your agreement details and the date your first payment is due.