The main ways to pay taxes depend on what you owe and when
The IRS and most state tax agencies let you pay in full when you file, set up a monthly payment plan, or request a short delay if you cannot pay right away. The method you choose affects how much interest and penalties you owe, and how quickly the debt stops growing. Full payment stops all additional charges when ready. A payment plan lets you spread the cost over months or years but adds interest and a setup fee. A delay (called an installment agreement or payment arrangement) buys you time to gather funds without filing a return late, though interest still accrues.
Your choice also determines whether you face collection action like wage garnishment or bank levy. As long as you are making regular payments on an approved plan, the IRS and most states will not pursue these enforcement methods. This protection lasts only while you stay current on your payments—missing even one can trigger collection action.
Key Takeaways
- Paying your full tax bill when you file stops interest and penalties from growing, and is the least expensive option overall.
- The IRS offers short-term plans (up to 180 days) at no setup cost and long-term plans (up to 72 months) with a one-time fee ranging from $31 to $225 depending on how you set it up.
- State tax agencies have their own payment plans with different terms, fees, and interest rates—contact your state revenue office to learn what is available.
- If you cannot pay by the filing important date, requesting a payment plan before the important date stops some penalties from accruing, even if you have not yet paid anything.
- Monthly automatic payments from your bank account usually cost less than one-time payments or payments made by phone or mail.
Federal payment plans: short-term and long-term options
The IRS offers two main federal payment plans. A short-term payment plan lets you pay off what you owe within 180 days at no setup cost. This works if you need a few months to gather the money but expect to have it soon. You pay no fee to set up the plan, though interest and penalties continue to accrue on the unpaid balance.
A long-term installment agreement spreads payments over months or years—up to 72 months for most taxpayers. The setup fee ranges from $31 to $225 depending on how you set it up. If you enroll in automatic monthly payments from your bank account (called a direct debit installment agreement), the fee is $31. If you pay by check, money order, or credit card, the fee is $225. The IRS charges interest on the unpaid balance each month, plus a penalty for underpayment, until the debt is cleared.
You can set up a federal payment plan online through IRS.gov, by phone at 1-800-829-1040, or by mail. Online setup is fastest and lets you see your plan details when ready. The IRS will tell you your monthly payment amount based on how much you owe and how long you want to take to pay it.
State tax payment plans vary by state
Each state that collects income tax has its own payment plan rules. Some states offer plans similar to the federal short-term and long-term options. Others have different fee structures, interest rates, or maximum payment periods. A few states do not offer formal payment plans at all and instead require you to pay in full or request a hardship delay.
To find out what your state offers, contact your state revenue or tax department directly—the phone number is usually on your state tax return or on the state's revenue website. Have your tax ID number and the year you owe taxes for ready when you call. The state can tell you the setup fee, monthly payment amount, interest rate, and how long you have to pay.
Some states let you set up a plan online, while others require a phone call or mailed form. A few allow payment plans only if you owe below a certain amount (often $10,000 to $25,000), so confirm you meet that threshold before you start the process.
What happens to interest and penalties while you pay
Interest accrues on any unpaid tax balance, whether you pay in full, use a payment plan, or request a delay. The federal interest rate changes quarterly and is currently in the range of 8 percent per year, though this varies. State interest rates differ from federal rates and change on different schedules.
Penalties also explore if you file late or pay late. The failure-to-file penalty is 5 percent of the unpaid tax per month (up to 25 percent total) if you file after the important date. The failure-to-pay penalty is 0.5 percent per month (up to 25 percent total) if you do not pay by the important date. If you set up a payment plan before the filing important date, the failure-to-file penalty stops accruing, even if you have not yet paid anything. The failure-to-pay penalty continues to accrue until the full balance is paid.
Paying in full when ready stops both interest and penalties from growing. A payment plan stops the failure-to-file penalty (if you set it up on time) but continues to charge interest and the failure-to-pay penalty until the balance reaches zero.
How to choose between paying in full, a short-term plan, and a long-term plan
If you have the money available, paying in full is the cheapest option because it stops all interest and penalties when ready. The cost difference between paying now and paying over time can be hundreds of dollars, depending on how much you owe and how long you take to pay.
If you need a few months but expect to have the money soon, a short-term plan (180 days or less) costs nothing to set up and keeps interest charges low. This is useful if you are waiting for a tax refund, a bonus, or a reimbursement.
If you cannot pay the full amount within six months, a long-term installment agreement spreads the cost over years. The setup fee ($31 to $225) and ongoing interest make this more expensive than paying in full, but it prevents the IRS or your state from taking collection action like wage garnishment or bank levy while you are making regular payments. As long as you pay on time each month, the agency will not pursue other collection methods.
Use an online calculator (available on IRS.gov and most state revenue websites) to see what your monthly payment would be under different plan lengths. This helps you decide what you can actually afford each month.
Setting up a payment plan before or after filing
You can set up a payment plan before you file your return or after. If you know you will owe money, setting up a plan before the filing important date stops the failure-to-file penalty from accruing, even if you have not yet paid anything. This saves you money in penalties.
If you file first and then set up a plan, you can still do so, but the failure-to-file penalty will have already started. You can request that the IRS or your state abate (remove) some or all of the penalty if you have a reasonable cause—for example, if you had a medical emergency or a death in the family. Abatement is not automatic, and you must request it in writing with documentation of your reason.
Most people set up a plan after filing because they do not know exactly what they will owe until they complete their return. The key is to set it up as soon as you know you cannot pay in full, rather than waiting months.
Payment methods and what they cost
The IRS accepts payment by direct debit (automatic withdrawal from your bank account), credit or debit card, electronic federal tax payment system (EFTPS), check, or money order. Direct debit is the cheapest option for a long-term plan because it qualifies for the $31 setup fee instead of $225. It also ensures you do not miss a payment, which could cause the plan to be cancelled.
Credit and debit card payments are processed by a third-party payment processor, which charges a convenience fee on top of your tax payment. This fee is typically 1.87 to 2.35 percent of the amount you pay, so it adds up quickly on large balances. You pay this fee each time you make a payment, so a long-term plan with monthly card payments becomes expensive.
Check and money order payments have no convenience fee but require you to mail them, which takes longer and gives you no proof of receipt until the check clears. EFTPS is free and lets you schedule payments in advance, but it requires you to enroll and plan ahead.
State payment methods vary. Some states accept the same methods as the IRS; others accept only checks or online bank transfers. Ask your state revenue office what methods are available and whether any have fees.
What happens if you miss a payment or cannot pay one month
If you miss a payment on a federal installment agreement, the IRS will send you a notice. You usually have 30 days to make the payment before the agreement is cancelled. If the agreement is cancelled, the full remaining balance becomes due when ready, and the IRS can begin collection action.
If you know you will miss a payment, contact the IRS before the due date. You can request a modification of your plan—a change to the monthly payment amount or the length of the plan. The IRS may allow you to lower your monthly payment and extend the plan, though this means paying more interest overall. Some modifications have a fee; others do not.
State plans have similar rules. If you miss a payment, contact your state revenue office when ready to ask about modifying the plan or making up the missed payment. The sooner you act, the more options you usually have.
Frequently Asked Questions
Can I set up a payment plan if I owe state and federal taxes?
Yes, but you set them up separately. The IRS handles your federal plan, and your state revenue office handles your state plan. Each has its own monthly payment, setup fee, and interest rate. You will make two separate payments each month unless you arrange otherwise with your state.
What if I cannot afford the monthly payment the IRS suggests?
You can request a modification to lower your monthly payment and extend the plan length. The IRS will work with you to find an amount you can afford, though extending the plan means paying more interest overall. Call 1-800-829-1040 to discuss your options.
Does setting up a payment plan affect my credit score?
A payment plan itself does not appear on your credit report. However, if the IRS files a tax lien (a legal claim against your property), that lien will appear on your credit report and harm your score. A payment plan can help you avoid a lien by showing the IRS you are making a good-faith effort to pay.
Can I pay off my plan early without a penalty?
Yes. You can pay off the remaining balance at any time without penalty. Paying early stops interest from accruing on the unpaid portion, so it saves you money. There is no fee for early payment.
What if my financial situation changes and I cannot pay taxes at all?
Contact the IRS or your state revenue office to discuss a currently not collectible status, which temporarily pauses collection action while you recover. Interest and penalties continue to accrue, but the agency will not pursue wage garnishment or bank levy. This is a temporary measure, not a permanent forgiveness of the debt.