Yes, you can set up a payment plan with the IRS, and you do not need to pay the full amount upfront
The IRS offers installment agreements that let you pay your tax debt over time instead of in one lump sum. The most common option is an online payment plan you can set up yourself in minutes. If you owe less than $50,000 in combined taxes, penalties, and interest, you can request a plan directly through the IRS website or by phone without speaking to a representative.
If you owe more than $50,000, you will need to work with an IRS representative to arrange a plan. Larger debts may also require a financial statement showing your income and expenses. The IRS will use that information to decide how much you can afford to pay each month.
Payment plans come with fees and interest continues to accrue on what you owe, so paying faster saves you money. But if you cannot pay in full right now, a plan stops the IRS from taking collection action like wage garnishment or bank levy while you are making regular payments.
Key Takeaways
- You can set up an installment agreement online through IRS.gov if you owe less than $50,000 in total tax debt.
- The IRS charges a setup fee (usually $31 to $225 depending on how you pay) and interest continues to accrue on your unpaid balance.
- Short-term plans (120 days or less) have lower fees than long-term plans, so paying faster reduces your total cost.
- If you miss a payment on your plan, the agreement can be cancelled and the IRS can resume collection action.
How to set up a payment plan online
Go to IRS.gov and search for "Online Payment Agreement." You will need your Social Security number or Individual Taxpayer Identification Number, your filing status, and the tax year(s) you owe for. The tool will ask you how much you want to pay each month and show you the total cost including fees and interest.
You can choose to pay monthly, bi-weekly, or weekly. Monthly payments are the most common. The IRS will deduct the payment automatically from your bank account on the date you choose each month. You can also pay by credit card or debit card, though the card processor charges an additional fee on top of the IRS setup fee.
Once you submit your request online, you will get an immediate confirmation number. The plan usually goes into effect within 24 hours. You will receive a letter in the mail within two weeks confirming the terms of your agreement.
Payment plan options and their costs
| Plan Type | Maximum Term | Setup Fee | Best For |
|---|---|---|---|
| Short-term plan | 120 days or less | $31 | Debt under $10,000 you can pay off quickly |
| Long-term installment agreement (online) | Up to 72 months | $31 to $225 | Debt under $50,000, automatic bank payments |
| Long-term installment agreement (phone/mail) | Up to 72 months or longer | $31 to $225 | Debt over $50,000 or custom payment amounts |
The setup fee depends on how you pay. If you set up automatic bank withdrawals, the fee is lower ($31 to $225). If you pay by credit or debit card, the card processor adds a separate fee on top of the IRS fee — this can be 2% to 3% of your payment amount.
Interest and penalties continue to accrue while you are on a payment plan. The current interest rate is 8% per year, charged daily on your unpaid balance. Penalties are usually 0.5% of your unpaid tax per month. The longer your plan runs, the more interest and penalties you will owe in total.
What happens if you cannot pay the full amount in 72 months
The IRS standard installment agreement runs up to 72 months (six years). If your debt is very large, you may not be able to pay it off in that time even with a plan. In that case, you can request a partial payment installment agreement, where you pay what you can afford each month and the IRS agrees not to pursue collection action while you are making payments.
With a partial payment plan, the IRS may periodically review your financial situation to see if you can pay more. If your income increases, they may raise your monthly payment. The unpaid balance does not go away after 72 months — it remains a debt you owe, but the IRS stops active collection efforts as long as you keep paying.
Another option is an Offer in Compromise, where you propose to settle your tax debt for less than you owe. This requires showing the IRS that you cannot pay the full amount even over time. The process is more complex and takes several months, but it can reduce your total debt significantly if you meet the criteria.
What to do if you miss a payment or your circumstances change
If you miss a payment, contact the IRS immediately. A single missed payment does not automatically cancel your plan, but if you miss payments for 30 days or more, the IRS can terminate the agreement. Once terminated, the full unpaid balance becomes due and the IRS can resume collection action.
If your financial situation changes and you cannot afford your current payment amount, you can request a modification. Call the IRS at 1-800-829-1040 or log into your IRS online account to adjust your monthly payment. The IRS will work with you to lower the payment, though this will extend the length of your plan and increase your total interest cost.
If you receive a tax refund while you are on a payment plan, the IRS will automatically apply it to your unpaid tax debt. You cannot stop this — it is automatic. Plan accordingly if you expect a refund.
Payment plans for state taxes
Each state has its own rules for payment plans on state income tax debt. Most states offer installment agreements similar to the federal system, but the terms, fees, and application process vary widely. Contact your state tax authority directly to learn what options are available.
Some states allow you to set up a plan online; others require you to call or mail in a request. State setup fees typically range from $25 to $100, and state interest rates vary by state. If you owe both federal and state taxes, you will need to set up separate plans with each.
Frequently Asked Questions
Will a payment plan stop the IRS from garnishing my wages or levying my bank account?
Yes. Once your payment plan is approved and active, the IRS stops collection action as long as you make your payments on time. If you miss a payment for 30 days or more and the plan is terminated, collection action can resume.
Can I pay off my plan early without a penalty?
Yes. You can pay off your installment agreement at any time without penalty. Paying early saves you money on interest and penalties. You can make extra payments or pay the full balance whenever you are able.
What if I cannot afford any monthly payment right now?
If you have no income or your expenses exceed your income, you may be considered Currently Not Collectible. The IRS will pause collection action temporarily while you are in financial hardship. Interest and penalties still accrue, but you are not required to make payments. You can request this status by calling 1-800-829-1040.
Does setting up a payment plan affect my credit score?
A payment plan itself does not appear on your credit report. However, if the IRS filed a tax lien before you set up the plan, that lien remains on your credit report. Once you pay off the plan in full, you can request that the lien be released.
Can I set up a payment plan if I owe taxes from multiple years?
Yes. Your payment plan covers all tax years you owe for. The IRS combines them into one total debt and one monthly payment. You cannot split them into separate plans.