The IRS offers four main payment plans, each with different monthly costs and timelines
If you owe the IRS money, you do not have to pay it all at once. The IRS lets you set up a payment plan — an agreement to pay what you owe over time in monthly installments. The plan you choose depends on how much you owe, how quickly you can pay it back, and whether you want to handle it yourself or have the IRS manage the payments.
The four options are a short-term payment plan (120 days or less), a long-term installment agreement (more than 120 days), a partial payment installment agreement (paying less than the full amount), and an offer in compromise (settling for less than you owe). Each one has different setup fees, interest rates, and rules about who can use it.
Key Takeaways
- A short-term plan lets you pay off your debt in 120 days or less with no setup fee, but you still owe interest and penalties on the unpaid balance.
- A long-term installment agreement spreads payments over months or years and costs between $31 and $225 to set up, depending on how you pay.
- A partial payment plan lets you pay less than the full amount if you cannot afford the full debt, though the IRS may still pursue collection later.
- An offer in compromise settles your entire debt for a smaller lump sum, but requires detailed financial paperwork and has a $225 application fee.
- Direct debit (automatic monthly payments from your bank account) costs less to set up than other payment methods and reduces the chance of missed payments.
Short-term payment plans: 120 days or less
A short-term plan is the simplest option if you can pay off your debt quickly. You have up to 120 days to pay the full amount you owe, and there is no setup fee. You still owe interest and penalties on the unpaid balance, but you avoid the extra costs that come with longer plans.
You can request a short-term plan by calling the IRS at 1-800-829-1040, visiting IRS.gov, or using the IRS payment agreement tool online. The IRS will tell you the exact amount due each month to clear the debt within your timeline. If you miss a payment, the plan ends and the IRS may take collection action.
Long-term installment agreements: paying over months or years
A long-term installment agreement is what most people use when they cannot pay their tax debt in a few months. You agree to pay a fixed amount each month until the debt is paid off, which can take anywhere from a few months to six years or longer depending on the amount owed and your payment size.
Setup fees range from $31 to $225 depending on how you pay. If you set up direct debit (automatic monthly payments from your bank account), the fee is $31. If you pay by phone, online, or mail, the fee is $225. Once the plan is in place, you owe interest on the unpaid balance at the current IRS rate, which changes quarterly. You also continue to owe any penalties that were part of your original bill.
You can request a long-term plan through the IRS website, by phone, or by mail. The IRS will calculate your monthly payment based on how much you owe and how long you want to take to pay it. If you set up direct debit, payments come out of your bank account on the date you choose each month.
Partial payment installment agreements: when you cannot pay the full amount
A partial payment plan is for people who cannot afford to pay back the full amount they owe, even over time. You agree to pay a monthly amount that is less than what would clear the debt, and the IRS accepts this as your payment plan. This does not forgive the remaining balance — it just pauses collection while you make the agreed payments.
The IRS reviews your financial situation to decide whether to accept a partial plan. You will need to provide information about your income, expenses, and assets. The IRS may ask you to update this information every two years to see if your ability to pay has changed. If your finances improve, the IRS can require you to increase your monthly payment or pay the remaining balance in full.
A partial plan costs $225 to set up (or $31 if you use direct debit). Interest and penalties continue to accrue on the unpaid portion. This option is less common than a full installment agreement because it requires more paperwork and IRS review, but it can be a way forward if you genuinely cannot afford to pay the full debt.
Offers in compromise: settling for less than you owe
An offer in compromise is a settlement where you pay a single lump sum that is less than the total amount you owe, and the IRS forgives the rest. This is not a payment plan in the traditional sense — it is a one-time payment to close the case. The IRS only accepts an offer if your financial situation makes it unlikely you will ever be able to pay the full amount.
To pursue an offer in compromise, you must submit Form 656 (Offer in Compromise) along with detailed financial statements showing your income, expenses, assets, and debts. The application fee is $225, and this fee is not refunded if the IRS rejects your offer. The IRS takes several months to review your offer, and they may counter with a different amount. If you disagree with their decision, you have appeal rights.
An offer in compromise is the hardest option to get approved for, and it requires the most paperwork. However, if you are in genuine financial hardship and have little chance of paying back what you owe, it may be worth pursuing. The IRS publishes guidelines on their website about what situations they typically accept.
How setup fees and interest work across all plans
All payment plans except the short-term plan charge a setup fee. Direct debit is always cheaper — $31 instead of $225 — because it reduces the IRS's cost of collecting payments. If money is tight, choosing direct debit saves you $194 upfront.
Interest accrues on your unpaid balance every day until it is paid off. The IRS interest rate is set by law and changes quarterly. As of 2024, the rate is 8 percent per year, but this changes. You can find the current rate on IRS.gov. Penalties also continue to accrue unless you have a specific reason they should be waived — for example, if the IRS made an error or you had reasonable cause for not paying on time.
The longer your payment plan, the more interest you will pay overall. A short-term plan costs less in interest because you pay faster. A long-term plan spreads the cost over time, which means lower monthly payments but higher total interest. When you are deciding between plans, factor in both the monthly payment amount and the total cost over the life of the plan.
Choosing between payment plan types
| Plan Type | Timeline | Setup Fee | Best For |
|---|---|---|---|
| Short-term | Up to 120 days | $0 | Small amounts you can pay off quickly |
| Long-term installment | Months to years | $31–$225 | Larger amounts paid over time |
| Partial payment | Ongoing, reviewed every 2 years | $31–$225 | Amounts you cannot fully repay |
| Offer in compromise | Several months to review | $225 (non-refundable) | Severe financial hardship, unlikely to ever pay full amount |
Start by calculating how much you can realistically pay each month. If you can clear the debt in four months, a short-term plan saves you money. If you need more time, a long-term installment agreement is standard. If your monthly budget is very tight, a partial payment plan might be the only realistic option, even though it costs more in setup fees and interest.
Direct debit is worth choosing whenever possible. It costs $194 less to set up, reduces the chance you will miss a payment (which would end the plan), and the IRS may view it favorably if you later need to modify the plan.
How to request a payment plan
You can request a payment plan through three channels: online at IRS.gov using the Online Payment Agreement tool, by phone at 1-800-829-1040, or by mail using Form 9465 (Installment Agreement Request). The online tool is fastest — you can set up a plan in minutes and start making payments within days.
Before you contact the IRS, have your Social Security number, the tax year(s) you owe for, and the amount you owe ready. If you are requesting a partial payment plan or an offer in compromise, you will also need to provide detailed financial information. The IRS will ask about your income, monthly expenses, assets, and any debts you carry.
Once your plan is approved, the IRS will send you a confirmation letter with your monthly payment amount, due date, and payment instructions. Keep this letter — it is your proof that you have a plan in place. If you set up direct debit, your first payment will come out of your bank account on the date you chose.
What happens if you miss a payment or need to change your plan
If you miss a payment, the IRS will send you a notice. You typically have 30 days to make the payment before the plan is terminated. Once the plan ends, the IRS can resume collection action, including wage garnishment or bank levies.
If your financial situation changes and you cannot afford your current monthly payment, contact the IRS before you miss a payment. You can request to modify your plan — lower the monthly amount, extend the timeline, or switch to a partial payment plan. Modifications are usually free, but the IRS may ask for updated financial information to approve the change.
If you receive a large sum of money (a bonus, inheritance, or tax refund), you can pay down your plan early without penalty. Paying extra reduces the total interest you owe and shortens the timeline.
Frequently Asked Questions
Can I set up a payment plan if I owe penalties and interest, not just the original tax?
Yes. Your payment plan covers the original tax amount plus any penalties and interest that have accrued. Interest continues to accrue on the unpaid balance until the plan is paid off, so the longer the plan, the more interest you will owe in total.
What if I cannot afford any of these payment plans?
If you have no income or assets and cannot pay anything, you may be classified as "currently not collectible" by the IRS. This pauses collection action temporarily, but the debt remains and interest continues to accrue. Contact the IRS to discuss your situation.
Do I still owe penalties if I set up a payment plan?
Yes, unless the IRS waives them. Penalties are part of what you owe and are included in your payment plan. You can request a penalty waiver if you have reasonable cause — for example, if you had a serious illness or the IRS made an error — but this requires a separate request.
Can I pay off my plan early without a penalty?
Yes. You can pay extra or pay the full remaining balance at any time without penalty. Paying early reduces the total interest you owe.
What if the IRS rejects my offer in compromise?
If your offer is rejected, you have 30 days to appeal the decision. If you do not appeal or your appeal is denied, you can request a long-term installment agreement instead to pay the full amount owed.