The IRS lets you pay taxes you owe over time through a formal agreement called an installment agreement

If you cannot pay your full tax bill when it is due, you can request an installment agreement that lets you make monthly payments instead of paying everything at once. The IRS has several types of agreements depending on how much you owe and your situation. You set this up directly with the IRS—not through a third party—and the process takes a few weeks from request to approval.

The IRS charges a setup fee (usually between $31 and $225, depending on the agreement type and how you pay) and interest on the unpaid balance. Interest accrues daily at a rate set quarterly by the IRS. You will also owe a failure-to-pay penalty of 0.5% per month on the unpaid amount, though this penalty is reduced to 0.25% per month if you are on an installment agreement.

Key Takeaways

  • You can request an installment agreement by phone, mail, or online through the IRS website, and the IRS will tell you within a few weeks whether your request is approved.
  • Short-term agreements (120 days or less) have no setup fee, while long-term agreements charge between $31 and $225 depending on payment method and income level.
  • Monthly payments are calculated based on what you owe and how long you want to pay, and you can change your payment amount or agreement terms if your situation changes.
  • If you miss a payment, the agreement can be terminated and the full balance becomes due immediately, so setting a payment amount you can actually afford is critical.
  • The IRS will place a federal tax lien on your property if you do not pay, even while on an installment agreement, though the lien may be withdrawn once you pay in full.

Three types of installment agreements and which one fits your situation

Short-term agreements cover balances you can pay off in 120 days or less. There is no setup fee, and you can request one by phone or online. This is the fastest route if you owe less than a few thousand dollars and can pay it back within four months.

Long-term installment agreements are for balances over $50,000 or payments that will take longer than 120 days. These require a setup fee and more documentation. You can pay monthly, biweekly, or through automatic bank withdrawal (which costs less in setup fees). Most people use this type because it spreads payments over years rather than months.

Streamlined installment agreements are for people who owe $50,000 or less and want to avoid detailed financial disclosure. You do not have to submit income and expense information, and the setup fee is lower. The monthly payment is calculated by the IRS based on your balance and a standard repayment period (usually 60 to 84 months).

How to request an installment agreement

You can start the process three ways: online through IRS.gov, by phone at 1-800-829-1040, or by mail using Form 9465 (Installment Agreement Request). Online is fastest—you can complete the request in 15 minutes and get a response within a few weeks. Phone requests take longer because you will be placed in a queue, but you can ask questions in real time. Mail is slowest and can take six to eight weeks.

Before you contact the IRS, have your Social Security number, the tax year(s) you owe for, and the total amount you owe ready. If you are requesting a long-term agreement, you will also need to provide income and expense information so the IRS can calculate a reasonable monthly payment. If you are self-employed or have complex finances, gather your most recent tax return and bank statements.

When you request online or by phone, the IRS will tell you immediately whether your request is approved or if they need more information. If approved, you will receive a notice in the mail within two to three weeks with your agreement terms, monthly payment amount, and due date. If denied, the notice will explain why and what you can do next.

What happens after your agreement is approved

Once approved, your monthly payment is due on the date specified in your agreement notice. You can pay by automatic bank withdrawal (which costs the least in setup fees), by credit or debit card through an IRS-approved payment processor, by check or money order mailed to the IRS, or through the IRS Direct Pay system on IRS.gov. Set up automatic withdrawal if possible—it removes the risk of missing a payment and the IRS charges no fee for this method.

While you are on an installment agreement, the IRS will still place a federal tax lien on your property if you owe more than $15,000 (the threshold varies by year). This lien gives the IRS a legal claim to your assets and appears on your credit report. It does not mean the IRS will seize your property, but it does make it harder to sell a home or borrow money. The lien is released once you pay your balance in full.

Interest and penalties continue to accrue while you are paying. The monthly interest rate is roughly 0.5% to 0.75% of your unpaid balance, depending on the quarter. This means your monthly payment covers some principal and some interest—the exact split depends on your payment amount and the interest rate in effect that month.

What to do if you cannot afford your monthly payment

If your circumstances change and you cannot make the agreed payment, contact the IRS before you miss a payment. You can request a modification to lower your monthly amount, extend your repayment period, or switch to a different agreement type. The IRS will not automatically adjust your payment—you have to ask.

If you miss a payment, the IRS will send you a notice. You typically have 30 days to bring the account current before the agreement is terminated. Once terminated, the full unpaid balance becomes due immediately and the IRS can pursue collection action, including wage garnishment or bank levy. Missing one payment does not automatically end the agreement, but repeated missed payments will.

If you are in financial hardship and cannot pay even a reduced amount, you can request Currently Not Collectible (CNC) status, which temporarily pauses collection efforts. Interest and penalties still accrue, but the IRS stops pursuing payment. This is not a forgiveness—you will owe the full amount once your financial situation improves—but it stops the immediate pressure.

How installment agreements affect your credit and taxes

An installment agreement itself does not appear on your credit report, but the underlying tax debt does. If the IRS places a federal tax lien on your property, that lien appears on your credit report and damages your credit score. Once you pay in full, you can request that the lien be withdrawn, though this takes a few weeks.

While on an installment agreement, you can still receive tax refunds, but the IRS will intercept them and apply them to your balance. This happens automatically—you do not have to do anything. If you are married and filing jointly, your spouse's refund can also be intercepted if you filed jointly for the year you owe.

Frequently Asked Questions

Can I get 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. The IRS calculates your monthly payment based on the total amount owed, including all penalties and interest accrued to date. Interest continues to accrue on the unpaid balance each month.

What happens if I pay off my installment agreement early?

You can pay off the agreement at any time without penalty. Simply send a payment for the full remaining balance. Once paid in full, the federal tax lien is released (though you may need to request this in writing), and your agreement ends.

Do I need a lawyer or tax professional to set up an installment agreement?

No. You can set up an agreement directly with the IRS for free. A tax professional or attorney can help if your situation is complex, but they are not required and will charge a fee for their services.

Can the IRS change my payment amount or terms after I agree?

The IRS can change your agreement if your financial situation changes significantly or if you request a modification. You can also request a change if you want to pay faster or slower. Any change requires a new agreement and may involve a new setup fee.

What if I owe taxes for multiple years?

You can set up a single installment agreement that covers all years you owe. The IRS will calculate one monthly payment that covers the total balance across all tax years. Your agreement notice will specify which years are included.