Yes, the IRS offers payment plans if you cannot pay your full tax bill when it is due

If you owe federal income tax and do not have the money to pay it all on the tax important date, you can request a payment plan (called an installment agreement) that lets you pay in monthly chunks instead. The IRS has several types of plans depending on how much you owe and how quickly you can pay. You set up the plan yourself, either online or by mail, and the IRS charges interest and a setup fee on top of what you owe.

The key difference between plans is whether the IRS knows your income and expenses (which affects the monthly amount) or whether you propose your own monthly payment. Smaller debts have simpler, cheaper plans. Larger debts require more paperwork but give you more time to pay.

Key Takeaways

  • Short-term payment plans (120 days or fewer) have no setup fee, but long-term plans charge between $31 and $225 depending on how you set them up.
  • You can set up a plan online through IRS.gov, by phone at 1-800-829-1040, or by mailing Form 9465 with your tax return or bill.
  • The IRS charges interest (currently around 8% per year) plus a penalty on unpaid taxes, whether you have a plan or not.
  • If you owe less than $2,500, you can propose any monthly payment you want; if you owe more, the IRS may require you to show your income and expenses.
  • Missing a payment on your plan can end the agreement, so set up automatic payments from your bank account if possible.

The three main types of payment plans and what they cost

A short-term payment plan is for people who owe less than $100,000 and can pay within 120 days. There is no setup fee. You straightforward tell the IRS when you will pay, and they send you a bill. This is the cheapest option because you pay off the debt quickly and interest does not pile up as much.

A long-term installment agreement is for people who need more than 120 days to pay. The setup fee ranges from $31 to $225 depending on how you set it up. If you set it up online or by phone, the fee is lower ($31 to $225). If you mail in Form 9465, the fee is $225. You pay monthly, and the amount depends on how much you owe and how long you want to take to pay it off.

A streamlined installment agreement is a middle option for people who owe between $2,500 and $25,000. You do not have to provide detailed financial information—you just propose a monthly payment amount that works for you, and the IRS usually accepts it if you can pay off the debt within 72 months (six years). The setup fee is $31 if you set it up online or by phone.

How to set up a payment plan online or by phone

The fastest way is through the IRS website at IRS.gov. Log in with your IRS online account (you can create one for free), go to the payment plan section, and follow the prompts. You will enter how much you owe, how much you can pay each month, and your bank account information if you want automatic payments. The IRS will tell you when ready whether your plan is accepted.

If you do not want to use the website, call the IRS at 1-800-829-1040. A representative will walk you through the same questions and set up the plan over the phone. Wait times are usually shorter early in the morning or later in the week.

If you prefer to mail in your request, use Form 9465 (Installment Agreement Request). Attach it to your tax return if you have not filed yet, or mail it separately with a copy of your most recent tax bill if you have already filed. Include your proposed monthly payment amount. The IRS will mail you back a notice saying whether the plan is approved and when your first payment is due.

What happens to interest and penalties while you are on a payment plan

Interest and penalties do not stop just because you have a payment plan. The IRS charges interest on the unpaid balance every month—currently around 8% per year, though this changes quarterly. You also owe a failure-to-pay penalty of 0.5% per month on any amount you have not paid by the original important date, up to 25% total. These amounts are added to your bill automatically.

This means your monthly payment covers part of the original tax, part of the interest, and part of the penalty. If you pay slowly, you will end up paying more total money because interest keeps accruing. The faster you can pay, the less interest you will owe.

If you later come into money and want to pay off the plan early, you can do so without penalty. The IRS will not charge you extra for paying ahead of schedule.

What to do if you miss a payment or cannot afford the monthly amount

If you miss a payment, the IRS will send you a notice. You usually have a grace period of a few days to make the payment before the plan is terminated. If the plan ends, you owe the full remaining balance when ready, and the IRS may start collection actions like wage garnishment or bank levy.

If you set up automatic payments from your bank account (which you can do when you create the plan), you avoid the risk of forgetting. The payment comes out on the same day each month.

If your circumstances change and you cannot afford the monthly payment anymore, contact the IRS and ask to modify the plan. You can request a lower monthly payment, a longer repayment period, or a temporary pause. The IRS will ask you to provide financial information (income, expenses, assets) to show why you need a change. Modification requests are usually handled within 30 days.

Payment plans through state tax agencies

Most states that have income tax also offer payment plans for state tax debt. The rules and fees vary by state. Some states allow you to set up a plan online; others require you to call or mail in a request. Contact your state's department of revenue or taxation to learn what options are available.

State payment plans usually work the same way as federal plans—you propose a monthly amount, interest and penalties continue to accrue, and missing a payment can end the agreement. Some states charge lower interest rates than the IRS, and some charge no setup fee.

Frequently Asked Questions

Can I set up a payment plan if I owe back taxes from multiple years?

Yes. You can combine all the years you owe into one payment plan. The IRS will calculate the total amount owed across all years and let you propose a single monthly payment that covers everything. This is often simpler than managing separate plans for each year.

What if I cannot pay even a small monthly amount right now?

You can request a Currently Not Collectible status, which temporarily pauses collection action. You still owe the debt and interest keeps accruing, but the IRS stops trying to collect for a period of time. You will need to show the IRS that you have no income or assets available to pay. This is not a forgiveness—the debt remains and can be collected later.

Do I have to pay the setup fee upfront?

No. The setup fee is usually added to your first payment or rolled into your total debt. You do not pay it separately. If you set up the plan online, the fee is deducted from your first payment automatically.

Will a payment plan hurt my credit score?

A payment plan itself does not appear on your credit report. However, if the IRS filed a tax lien (a public notice that you owe money), that lien will show up on your credit report and will hurt your score. Setting up a payment plan does not remove a lien, but it can prevent the IRS from filing one in the first place if you set it up before they do.

Can I set up a payment plan if I owe self-employment tax?

Yes. Self-employment tax debt can be included in a payment plan just like income tax debt. The process is the same—you can set it up online, by phone, or by mail using Form 9465.