Your Guide to IRS Payment Plans

Discovering that you owe taxes can be truly stressful if you can’t afford to pay them all at once. Don't panic if you find yourself in this situation. The IRS offers a few payment plans that will let you pay the taxes you owe over time.

Key Takeaways

• An IRS payment plan lets you spread out your tax bill over a period of time if you can’t afford to pay your tax debt right away and in full.
• You can set up a short-term or long-term plan, depending on whether you can afford to pay the IRS within 180 days.
• Interest will continue to accrue if you set up an IRS payment plan.
• Most taxpayers won’t qualify for the programs that tax relief companies advertise.
  

What Is an IRS Payment Plan?

An IRS payment plan is an agreement that gives you an extended period of time to pay off the taxes you owe. You’ll avoid collection actions such as tax liens and tax levies by setting up a plan.

The IRS failure-to-pay penalty is 0.5% per month for each month you're late, up to 25% of the amount you owe, plus interest. The IRS adjusts its interest charges quarterly. They're always set at the federal short-term rate plus 3%. The interest rate is 7% for individual taxpayers for the first quarter of 2023.

An IRS installment plan is typically cheaper than paying your taxes with a credit card if you can’t pay your tax debt in full. The average credit card annual percentage rate (APR) was 22.70% in December 2022.

Note

Any tax refunds that you're due for other years while you're enrolled in a payment plan will be applied to your balance until you no longer owe.

You can set up a short-term payment plan if you can afford to pay off your balance in 180 days or less. Taxpayers who owe less than $100,000 and can pay in 120 days or less may apply for a short-term plan online at IRS.gov/OPA; those who need more time to pay, up to 180 days, must apply by mail or telephone. Otherwise, you can apply for a long-term streamlined payment plan and make monthly installment payments. The maximum repayment period is 72 months.

Who Is Eligible for an IRS Payment Plan?

You’re guaranteed to qualify for an IRS installment agreement if you owe $10,000 or less, and if you (and your spouse if married and filing jointly):

• Have filed your tax returns on time for the past five years;
• Agree to pay your tax debt in full within three years rather than 72 months;
• Can’t afford to pay the taxes you owe in full; and
• Aren’t in bankruptcy proceedings
  

You might still qualify by applying online if your tax bill is higher or you need more than three years to pay. Individuals who owe less than $50,000 and businesses that owe less than $25,000 can generally apply for a payment plan online as long as they’ve filed all of their tax returns, but you may be able to apply online even if you owe more.

An agreement can usually be set up in just a few minutes, according to the IRS website. You can apply by submitting Form 9465 or by calling the IRS if you’re not eligible to set up a plan online.

The IRS will require that you set up automatic monthly payments by direct debit from your bank account if the balance you owe is greater than $25,000. The same rule applies to businesses that owe more than $10,000.

What Are the Fees for an IRS Payment Plan?

Fees also apply if you set up an IRS payment plan. Some fees can be waived, however, if the IRS considers you to be a low-income taxpayer; that is, your if income for the tax year is at or below 250% of the applicable federal poverty level.

Should I Use a Tax Settlement Firm?

Your best option is typically to work directly with the IRS rather than hiring a tax settlement company if you owe taxes. Plenty of firms claim that they can reduce your tax debt or stop wage garnishment, but the Federal Trade Commission (FTC) warns that most taxpayers won’t qualify for the programs they advertise.

Note

The FTC has received numerous complaints from taxpayers who say that certain tax settlement firms not only failed to negotiate a settlement for them but also didn’t submit the necessary paperwork to the IRS. They charged unauthorized fees.

The FTC recommends carefully reviewing a tax relief company’s fee structure and cancellation policies before hiring one to represent you. A better solution is often to contact the Taxpayer Advocate Service, an independent division of the IRS, for unresolved issues. Only a certified public accountant (CPA), an enrolled agent, or an attorney can represent you before the IRS if you want the assistance of a third party.

Alternatives to an IRS Payment Plan

You can ask the IRS to delay collection if you're unable to pay any of your tax debt at all. The debt won't go away if the IRS approves your request, but your account will be reported as "currently not collectible." Interest and late payments will still continue to accrue.

You may also be eligible for an offer in compromise (OIC) in which the IRS agrees to settle your debt for a reduced amount. This isn’t an option if you’re currently in bankruptcy, however. Use the IRS Offer in Compromise Pre-Qualifier screening tool to determine whether this could be an option for you.

Frequently Asked Questions (FAQs)

How many months are IRS payment plans?

The IRS offers payment plans of 180 days for short-term plans and monthly installment agreements if you need more time than that. Typically, you'll have up to 72 months to repay your taxes with a streamlined installment agreement or routine installment agreement. If you can't manage to repay it in six years, you may get one year to modify your expenses so that you can meet your payments.

Does the IRS deny payment plans?

Yes, it's possible the IRS may deny your payment plan. Some reasons the IRS may deny or terminate a payment plan include not meeting the criteria to apply or defaulting on your payments. If you are denied, you can appeal the decision with the IRS by filling out Form 9423.

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

1. IRS. "Collection Procedural Questions."
2. IRS. "Quarterly Interest Rates."
3. IRS. "Additional Information on Payment Plans."
4. IRS. "Instructions for Form 9465: Installment Agreement Request."
5. IRS. "5.9.4.20.1 (02-03-2023): IA Requests for Post-Petition Liabilities Submitted During Bankruptcy."
6. IRS. "Apply Online for a Payment Plan."
7. Federal Trade Commission. "Tax Relief Companies."
8. IRS. "Publication 947 (02/2018), Practice Before the IRS and Power of Attorney."
9. IRS. "Temporarily Delay the Collections Process."
10. IRS. "Form 656 Booklet: Offer in Compromise," Page 1.
11. IRS Taxpayer Advocate Service. "Payment Plans."

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