Yes, the IRS lets you pay taxes over time instead of in one lump sum
If you owe the IRS money and cannot pay it all at once, you can request a payment plan (called an installment agreement). The IRS will let you pay in monthly installments, and you stay out of default as long as you make each payment on time. The plan covers the full amount you owe plus interest and penalties, which keep accruing until the debt is paid off.
Payment plans are available whether you owe a few hundred dollars or several thousand. The IRS has different types of plans depending on how much you owe and your income, and some plans charge lower fees than others. You can set up a plan online, by phone, or by mail, and the process usually takes a few days to a few weeks.
Key Takeaways
- The IRS offers payment plans for any amount owed, and you can set one up online through your IRS account or by calling 1-800-829-1040.
- Short-term plans (120 days or less) have no setup fee; longer plans charge between $31 and $225 depending on how you set it up and your income level.
- Interest and penalties continue to grow while you pay, so the total cost increases the longer the plan lasts.
- Missing even one payment can end the plan and trigger collection action, so automatic payments from your bank account are the safest option.
- State tax agencies have their own payment plan rules, which vary by state and may be stricter or more flexible than the federal IRS.
How much you owe determines which plan type you can use
The IRS sorts payment plans by the total amount owed. If you owe $2,500 or less, you can set up a plan online with no paperwork and minimal fees. If you owe between $2,501 and $25,000, you have more options but must provide financial information. If you owe more than $25,000, the IRS requires a formal application and may ask for proof of income and expenses.
The amount you owe also affects how long you can take to pay. Plans for smaller amounts can be as short as a few months; larger debts may stretch over five to six years. The longer the plan, the more interest and penalties you pay on top of the original tax bill.
Setup fees vary based on how you set up the plan
The IRS charges a one-time setup fee when you create a payment plan. The fee depends on the method you use and your income:
| Setup Method | Fee Amount |
|---|---|
| Online through IRS.gov | $31 (or $225 if you owe over $25,000) |
| Phone or mail | $31 to $225 depending on income |
| Short-term plan (120 days or less) | No fee |
| Low-income plan (if you meet income limits) | $31 |
If you set up automatic payments from your bank account (called direct debit), the IRS reduces the fee by $31. This is the cheapest option if you owe more than $2,500, because the savings often outweigh the cost of the plan itself.
Setting up a plan online is fastest if you owe $25,000 or less
The easiest route is the IRS Online Payment Agreement tool on IRS.gov. You log in with your IRS account (or create one), enter the amount you owe and your income, and choose a monthly payment amount. The system tells you immediately whether you may have access to and what the total cost will be. You can set up automatic payments from your bank account at the same time, which locks in the lower fee.
If you do not have an IRS account, you can create one using your Social Security number, date of birth, and filing status from your most recent tax return. The account creation takes about 10 minutes. Once you have set up the plan online, you receive a confirmation number and the first payment is usually due within 30 days.
If you owe more than $25,000, you cannot use the online tool. Instead, call the IRS at 1-800-829-1040 or mail Form 9465 (Installment Agreement Request) with your tax return and a financial statement. The IRS will contact you within a few weeks to discuss the plan.
Interest and penalties keep growing until the debt is paid
The IRS charges interest on unpaid taxes at a rate that changes quarterly. As of 2024, the rate is 8 percent per year, but this varies. You also pay a failure-to-pay penalty of 0.5 percent per month on the unpaid balance, which adds up quickly. Both the interest and the penalty are included in your monthly payment, so part of each payment goes toward the original tax and part goes toward these charges.
The longer your payment plan lasts, the more you pay in total. A $5,000 tax debt paid over 12 months costs less in interest than the same debt paid over 60 months. If you can afford a higher monthly payment, paying faster saves you money.
Missing a payment ends the plan and triggers collection action
Your payment plan stays in effect only if you make every payment on time. If you miss a payment by more than 30 days, the IRS can cancel the plan without warning. Once the plan is cancelled, the full remaining balance becomes due immediately, and the IRS can begin wage garnishment, bank levies, or liens on your property.
The safest way to avoid missing a payment is to set up automatic payments from your bank account. The IRS withdraws the payment on the date you choose each month, so you do not have to remember to pay. If your income changes and you cannot afford the payment, contact the IRS before the payment is due and ask to modify the plan. The IRS can lower your monthly payment or extend the plan, though this increases the total interest you pay.
State tax agencies have separate payment plan rules
If you owe state income tax, you must set up a separate payment plan with your state tax agency. Each state has different rules about how much you can owe, how long you can take to pay, and what fees apply. Some states allow online setup like the IRS; others require a phone call or mailed form. A few states offer payment plans with no setup fee, while others charge $50 or more.
Contact your state tax agency directly to learn about payment plan options. You can find the agency's website by searching "[your state] department of revenue" or "[your state] tax commission." Many state agencies have phone lines dedicated to payment plan requests and can set up a plan in one call.
Frequently Asked Questions
What happens if I cannot afford the monthly payment the IRS suggests?
You can request a lower payment amount by modifying your plan. Call the IRS at 1-800-829-1040 or log into your IRS account online and select "Modify Your Payment Plan." The IRS will work with you to set a payment you can manage, though a lower payment means the plan lasts longer and you pay more interest overall.
Can I pay off the plan early without a penalty?
Yes. You can pay the full remaining balance at any time without penalty. Paying early saves you interest and penalties, so if your financial situation improves, paying off the plan ahead of schedule is always an option.
Do I still have to file my tax return while on a payment plan?
Yes. A payment plan covers only the money you owe; it does not change your filing requirement. You must file your tax return each year by the deadline, even if you are still paying off a prior year's debt.
What if I owe both federal and state taxes?
You need separate payment plans for each. The IRS handles the federal plan, and your state tax agency handles the state plan. The monthly payments are separate, so budget for both when deciding what you can afford each month.
Can I set up a payment plan if the IRS has already filed a lien against me?
Yes. A payment plan does not prevent a lien, but setting up the plan shows the IRS you are taking action to pay. In some cases, the IRS will release the lien once you have made several on-time payments, though this is not automatic and depends on your specific situation.