Yes, the IRS offers payment plans for tax debt you cannot pay in full
The IRS does not require you to pay your entire tax bill at once. If you owe federal income tax and cannot pay the full amount by the deadline, you can set up a payment plan (called an installment agreement) that lets you pay in monthly installments. The IRS charges interest and penalties on the unpaid balance, and the monthly payment amount depends on how much you owe and how long you want to take to pay it off.
You can set up a plan online through the IRS website, by phone, or by mail. The process is straightforward if you owe less than $50,000 in combined tax, penalties, and interest. If you owe more, you will need to work with the IRS directly or hire a representative.
Key Takeaways
- The IRS offers short-term (120 days or less) and long-term payment plans; short-term plans have no setup fee, while long-term plans cost $31 to $225 depending on how you set them up.
- Interest accrues daily on your unpaid balance at a rate set quarterly by the IRS, and failure-to-pay penalties add 0.5% per month to what you owe.
- You can set up a plan online for free if you owe $50,000 or less and use direct debit from your bank account.
- Missing a payment on your plan can result in the IRS canceling it and taking collection action, including wage garnishment or bank levy.
- The IRS will not remove interest and penalties already added to your bill, even if you set up a plan.
Short-term versus long-term payment plans
A short-term payment plan covers 120 days or fewer. You pay no setup fee, and the IRS gives you until the end of that period to settle the debt. This option works if you expect money soon—a bonus, a tax refund, an inheritance—and just need a few months of breathing room. You still owe interest and penalties during those 120 days.
A long-term payment plan (formal installment agreement) spreads payments over months or years. The IRS typically allows plans lasting up to 72 months, though longer terms are possible if you owe a large amount. Long-term plans charge a setup fee: $31 if you set up the plan online with direct debit, $225 if you set it up by phone or mail, and $225 if you do not use direct debit. The monthly payment is calculated so that your debt is paid off by the end of the agreement term.
Most people choose long-term plans because they need more than four months to pay. The setup fee is a one-time cost added to your balance.
How to set up a plan online
If you owe $50,000 or less in combined tax, penalties, and interest, you can set up a long-term plan through the IRS Online Payment Agreement tool at irs.gov. You will need your Social Security number or Individual Taxpayer Identification Number, your date of birth, and your filing status. The process takes about 15 minutes.
The IRS will ask how much you can pay each month. You propose a payment amount, and the IRS calculates how long the plan will last based on that amount. If your proposed payment is too low to pay off the debt in 72 months, the IRS will reject it and ask you to increase the amount.
Once approved, you receive a confirmation number and a payment schedule showing your monthly due date. Payments are withdrawn automatically from your bank account on that date. If you set up the plan this way, the setup fee is $31.
Interest, penalties, and what happens to your existing debt
The IRS charges interest on any unpaid tax at a rate that changes every quarter. As of early 2024, the rate is 8% per year, but this varies. Interest accrues daily, meaning it compounds and grows even while you are making payments on your plan.
You also owe a failure-to-pay penalty of 0.5% per month (6% per year) on the unpaid balance. This penalty is separate from interest and is added to your bill each month you do not pay in full. If you set up a payment plan, the penalty is reduced to 0.25% per month while the plan is active, but it still accrues.
Any penalties or interest already added to your bill before you set up the plan stay on your bill. The IRS does not remove them. Your monthly payment covers both the original tax and these added costs.
What happens if you miss a payment
If you miss a payment on your plan, the IRS will typically send you a notice. You usually have 30 days to make the missed payment and get back on track. If you do not respond within that window, the IRS can cancel your payment plan and resume collection action.
Once the plan is canceled, the IRS may pursue other collection methods: wage garnishment (taking money directly from your paycheck), bank levy (freezing and seizing funds from your bank account), or a tax lien (a legal claim against your property). These actions are more disruptive than a payment plan, so contacting the IRS immediately if you know you will miss a payment is important.
If you fall behind but want to keep the plan, call the IRS at 1-800-829-1040 and explain your situation. The IRS may allow you to catch up over time or modify the plan to lower your monthly payment.
Payment methods and timing
The easiest and cheapest way to pay is direct debit from your bank account. Set this up when you create your plan online, and the IRS withdraws your payment automatically each month on your due date. There is no fee for this method beyond the $31 setup fee for the plan itself.
You can also pay by check, money order, credit card, or debit card, but these methods carry additional fees charged by third-party payment processors. The IRS does not charge these fees directly, but the processor does. Check or money order is free but slower—mail it to the address shown on your payment plan notice.
Payments are due on the date specified in your agreement. If that date falls on a weekend or holiday, the IRS considers the payment on time if it arrives by the next business day. Plan for mail delivery time if you are sending a check.
Modifying or canceling your plan
If your financial situation changes, you can modify your payment plan. You can increase or decrease your monthly payment, extend the plan term, or switch payment methods. Log into your IRS account online or call 1-800-829-1040 to request a change.
If you receive a lump sum of money—a bonus, inheritance, or tax refund—you can pay off the plan early without penalty. The IRS will not charge you extra for paying faster. Any refund you receive while the plan is active will be applied to your remaining balance unless you request otherwise.
You can cancel the plan at any time, but doing so means you owe the full remaining balance immediately. The IRS will resume collection action if you do not pay. Canceling makes sense only if you have the money to pay in full.
Frequently Asked Questions
Can I set up a payment plan if I have not filed my tax return yet?
No. You must file your return first, even if you cannot pay. File on time or request an extension to avoid additional penalties. Once you file, you can set up a payment plan for the balance due.
What if I owe more than $50,000?
You cannot use the online payment agreement tool. Contact the IRS at 1-800-829-1040 or work with a tax professional or enrolled agent. The IRS will work with you to set up a plan, but the process is more involved and may require financial documentation.
Will a payment plan stop the IRS from taking my tax refund?
No. While your payment plan is active, any federal tax refund you receive will be applied to your remaining balance. State refunds are not affected. If you need the refund for living expenses, contact the IRS before filing to discuss your options.
Can I deduct the interest and penalties I pay on my tax debt?
Interest is not deductible. Penalties are also not deductible in most cases. Consult a tax professional about your specific situation, as there are rare exceptions for certain types of penalties.
What if I cannot afford the minimum monthly payment the IRS suggests?
Call the IRS at 1-800-829-1040 and explain your situation. The IRS may lower your payment or extend your plan term. You can also request a Currently Not Collectible status, which temporarily pauses collection while you recover financially, though interest and penalties continue to accrue.