Yes, you can set up a payment plan with the IRS if you owe federal income tax

The IRS allows you to pay what you owe in monthly installments instead of a lump sum. This is called an installment agreement. You can set one up online, by phone, or by mail — and in some cases the IRS will let you start before your payment is due.

The catch is that you will pay interest and a setup fee on top of what you owe. The interest rate changes quarterly. The setup fee ranges from $31 to $225 depending on which method you use and your income level. Even with these costs, a payment plan keeps you from facing wage garnishment, bank levies, or a tax lien on your property.

State taxes work differently — each state has its own rules, and not all states offer payment plans. If you owe both federal and state taxes, you will need to handle each one separately.

Key Takeaways

  • The IRS offers three types of payment plans: short-term (120 days or less), regular monthly installments, and a streamlined plan for smaller debts that requires less paperwork.
  • You can set up a plan online through IRS.gov, by calling the IRS at 1-800-829-1040, or by mailing Form 9465 to the address shown in your tax notice.
  • Interest and setup fees apply to all payment plans, and the interest rate is set by the IRS each quarter and compounds daily on your unpaid balance.
  • State tax payment plans vary by state — some states offer them, others do not, and the terms and fees differ from the federal plan.
  • If you miss a payment on your plan, the IRS can cancel it and pursue collection action, so setting up automatic payments from your bank account reduces that risk.

The three types of IRS payment plans and how they work

The short-term payment plan is for people who can pay within 120 days. You do not need to file any forms — you just contact the IRS and tell them when you will pay. There is no setup fee, but interest still accrues daily on what you owe.

The long-term installment agreement is for people who need more than 120 days. This is the most common type. You pay a setup fee (usually $31 to $225) and then make monthly payments. The IRS will tell you the exact monthly amount based on what you owe, how much you can pay, and how long you want the plan to last. You can choose to pay over several years if needed.

The streamlined installment agreement is for people who owe $50,000 or less in combined federal income tax, penalties, and interest. It requires less paperwork and has a lower setup fee ($31). The IRS limits how long you can take to pay — usually you must finish within 72 months (six years), though some people may have access to for longer.

How to set up a payment plan online, by phone, or by mail

Online setup is the fastest route if you have a Social Security number, an Individual Taxpayer Identification Number (ITIN), or an Employer Identification Number (EIN). Go to IRS.gov, find the Online Payment Agreement tool, and follow the steps. You will see the monthly payment amount before you commit. The setup fee is $31 if you set it up online.

Phone setup takes longer but works if you prefer to talk to someone. Call the IRS at 1-800-829-1040. Have your tax return and notice of what you owe ready. The setup fee is $225 if you set it up by phone, so online is cheaper. The IRS can also set up automatic payments from your bank account during the call, which reduces the chance you will miss a payment.

Mail setup requires Form 9465 (Installment Agreement Request). Print it, fill it out, and mail it to the address shown in your tax notice. This is the slowest method — it can take four to six weeks for the IRS to process. The setup fee depends on whether you arrange automatic payments; it is $31 if you do, $225 if you do not.

Interest, fees, and what your monthly payment will actually cost

Every payment plan includes two extra costs on top of what you owe: the setup fee and daily interest. The setup fee is a one-time charge ($31 to $225). Interest compounds daily at a rate set by the IRS each quarter. As of early 2024, the federal interest rate is 8 percent per year, but this changes.

The IRS will calculate your monthly payment based on the total amount you owe plus interest. If you owe $5,000 and choose a 36-month plan, your monthly payment will be higher than $139 because interest is added to your balance each month. The IRS payment agreement tool shows you the exact monthly amount before you commit.

Penalties may also apply depending on why you owe. The most common is the failure-to-pay penalty, which is 0.5 percent of what you owe per month (up to 25 percent total). This penalty stops accruing once you set up a payment plan, but it is added to your balance before the plan starts.

What happens if you miss a payment or cannot afford the monthly amount

If you miss a payment, the IRS will send you a notice. You have the right to make up the missed payment, but if you do not respond, the IRS can cancel your agreement and go back to collection action — wage garnishment, bank levy, or a tax lien.

If your financial situation changes and you cannot afford the monthly payment, contact the IRS before you miss a payment. You can request a modification to lower the monthly amount or extend the plan. The IRS may also place your account in Currently Not Collectible (CNC) status, which pauses collection action for a period of time while interest and penalties continue to accrue. This is temporary — the IRS will check back on your account later.

State tax payment plans: rules vary by state

Not every state offers a payment plan for state income tax. Some states do, but the terms are different from the federal plan. A few states charge no interest or fees if you set up a plan quickly; others charge both. You will need to contact your state tax agency directly to find out what is available.

If you owe both federal and state taxes, set up each plan separately. The federal plan does not cover state taxes, and the state plan does not cover federal taxes. Some states will work with you to coordinate timing so your payments do not overlap, but you have to ask.

To find your state tax agency, search "[your state] department of revenue" or "[your state] tax commission." Most states have a phone number for payment plan requests and some have online portals similar to the IRS tool.

Payment plans for self-employed people and business taxes

If you owe self-employment tax or estimated tax penalties, the same IRS payment plan rules apply. The setup process is identical — online, phone, or mail. However, if you owe payroll taxes (taxes withheld from employee paychecks that you did not send to the IRS), the IRS treats this differently and may not offer a payment plan. Contact the IRS immediately if you owe payroll taxes.

Business income tax (Form 1120) can be included in a payment plan if you owe less than $50,000 total. If you owe more, you will need to work with an IRS revenue officer or a tax professional to negotiate terms.

Frequently Asked Questions

Can I set up a payment plan before I file my tax return?

No. You must file your return first. If you cannot pay by the filing deadline, file anyway and request a payment plan afterward. Filing on time stops failure-to-file penalties from accruing, even if you cannot pay.

What if I owe taxes from multiple years?

You can combine all years into one payment plan. The IRS will calculate the total amount owed across all years and set one monthly payment. This is simpler than managing separate plans for each year.

Does setting up a payment plan stop a wage garnishment or bank levy?

Not automatically. If the IRS has already started collection action, you need to contact them right away to request that they pause it while you set up a plan. Call 1-800-829-1040 and explain your situation. The IRS has discretion to stop collection action if you are working with them in good faith.

Can I pay off my plan early without a penalty?

Yes. You can pay the full remaining balance at any time without penalty. Interest will stop accruing once the balance is paid in full. There is no fee for paying early.

What if I cannot afford any monthly payment right now?

Contact the IRS and ask about Currently Not Collectible status. This pauses collection action temporarily while you get back on your feet. Interest and penalties still accrue, but the IRS will not garnish your wages or levy your bank account during this period. The IRS will review your case periodically.