Yes, the IRS will let you pay what you owe over time instead of in one lump sum
The IRS calls these arrangements installment agreements, and they exist specifically for people who cannot pay their full tax bill at once. You can set one up while you still owe money, and the IRS will stop collection action once your agreement is in place. The arrangement stays active until you finish paying, though interest and penalties continue to accrue on the unpaid balance.
The IRS offers several types of installment agreements, ranging from short-term plans (120 days or less) to long-term plans that can stretch for years. Which one you may have access to for depends on how much you owe and your income. You can set up an agreement online, by phone, or by mail, and the process usually takes a few days to a few weeks.
Key Takeaways
- The IRS offers installment agreements that let you pay your tax debt in monthly payments instead of all at once.
- Short-term agreements (120 days or fewer) have no setup fee; long-term agreements charge a fee that varies based on how you set it up.
- You can establish an agreement online through IRS.gov, by calling the IRS at 1-800-829-1040, or by mailing Form 9465 to the IRS.
- Once your agreement is approved, the IRS stops collection calls and wage garnishments, though interest and penalties keep growing on your unpaid balance.
- If you miss a payment or your financial situation changes significantly, you must contact the IRS to modify or reinstate your agreement.
Types of installment agreements and what each costs
A short-term agreement covers tax debt of any amount and gives you up to 120 days to pay. There is no setup fee, and you do not need to provide financial information. This works best if you know you can pay the full amount within four months.
A long-term installment agreement is what most people use when they need more time. The IRS charges a setup fee that depends on how you set it up: $31 if you use Online Payment Agreement on IRS.gov, $225 if you call or mail Form 9465, or $31 if you are on a low-income payment plan. Monthly payments are typically between $25 and several hundred dollars, depending on what you owe and how long you want to pay.
The IRS also offers a Streamlined Installment Agreement for people who owe $50,000 or less in combined income tax, penalties, and interest. This agreement has a lower setup fee ($31 online, $225 by phone or mail) and does not require you to submit detailed financial information. The payment period is typically five to six years.
How to set up an agreement online, by phone, or by mail
Online through IRS.gov is the fastest route if you owe $50,000 or less. Go to IRS.gov, navigate to the Online Payment Agreement tool, and enter your Social Security number, date of birth, and the tax year in question. You will see your balance and can choose your monthly payment amount. The setup fee is $31, charged to your payment method. You will receive confirmation immediately, and your agreement takes effect right away.
By phone, call the IRS at 1-800-829-1040 during business hours (Monday through Friday, 7 a.m. to 7 p.m. your local time). A representative will ask about your income, expenses, and how much you can pay each month. They will propose a payment amount and confirm the agreement over the phone. The setup fee is $225 and will be added to your first payment. You will receive written confirmation by mail within two weeks.
By mail, complete Form 9465 (Installment Agreement Request) and send it to the IRS address shown in your tax notice. Include a check or money order for the setup fee ($225) with your first payment, or authorize a direct debit from your bank account. Processing takes four to six weeks. Mail the form to the address listed in your most recent IRS notice or bill.
What happens to interest and penalties while you pay
Interest continues to accrue on your unpaid balance at the rate set by the IRS each quarter—currently around 8 percent annually, though this changes. Penalties also keep growing: the failure-to-pay penalty is typically 0.5 percent of your unpaid tax per month, and the failure-to-file penalty (if you did not file on time) is 5 percent per month, up to 25 percent total.
These charges are added to your balance each month, which means your monthly payment covers some of the original tax, some of the interest, and some of the penalties. The longer your agreement runs, the more interest and penalties you will pay overall. If you can pay faster than your agreement requires, you can send extra payments anytime without penalty.
What to do if you miss a payment or cannot afford your monthly amount
If you miss a payment, the IRS will send you a notice. You have 30 days to bring the account current before the agreement is terminated. Once terminated, the IRS can resume collection action, including wage garnishment or bank levy.
If your financial situation changes and you cannot afford your current payment, contact the IRS immediately at 1-800-829-1040 or through your online account on IRS.gov. You can request a modification to lower your monthly payment or extend your payment period. The IRS will ask for updated financial information. A modification does not reset your setup fee—you have already paid it.
If you receive a refund while your agreement is active, the IRS will apply it to your remaining balance automatically. You cannot prevent this, so plan accordingly if you are expecting a refund.
How the IRS collects if you default on your agreement
Once your agreement is in place, the IRS stops sending collection notices and stops calling. However, if you miss a payment and do not respond to the notice, the IRS can resume collection immediately. This includes wage garnishment (taking money directly from your paycheck), bank levy (freezing and taking money from your bank account), or a tax lien (a legal claim against your property).
A tax lien does not force a sale of your home, but it does attach to your credit report and makes it harder to borrow money or refinance. The lien stays on your record until you pay the debt in full or until the statute of limitations expires (usually 10 years from the date of assessment).
When an installment agreement might not be your best option
If you owe a very large amount and your income is low, an installment agreement might stretch for many years and cost significantly more in interest and penalties. In that case, you may want to explore an Offer in Compromise, which lets you settle your tax debt for less than you owe if you meet certain conditions. This requires submitting Form 656 and detailed financial information, and approval takes several months.
You might also may have access to for Currently Not Collectible status if you have no income or your expenses exceed your income. This temporarily pauses collection action and interest stops accruing (though penalties continue). You must reapply every two years, and the IRS can resume collection once your financial situation improves.
Frequently Asked Questions
Can I set up an installment agreement if I owe penalties and interest, not just the original tax?
Yes. Your installment agreement covers the original tax, penalties, and interest all together. The IRS calculates your balance to include all three, and your monthly payment goes toward all of them proportionally. Interest and penalties continue to grow on the unpaid portion each month.
What if I want to pay off my agreement early?
You can pay more than your monthly payment amount at any time without penalty. Send extra payments to the address on your bill, or make them online through IRS.gov. The extra amount reduces your balance and shortens your agreement timeline.
Do I need to file my tax return while I have an installment agreement?
Yes. An installment agreement covers past tax debt, not future obligations. You must continue to file your return on time each year and pay any tax due for that year. If you do not, the IRS can terminate your agreement.
Will an installment agreement hurt my credit score?
A tax lien (which the IRS may file if you default on your agreement) will appear on your credit report and lower your score. However, having an active, current installment agreement does not directly damage your credit, since it is not reported to credit bureaus the way a loan or credit card is.
Can I have an installment agreement and a payment plan at the same time for different tax years?
Yes. If you owe taxes for multiple years, you can set up one agreement that covers all of them, or separate agreements for each year. Most people combine them into one agreement for simplicity. Contact the IRS to discuss which approach works for your situation.