IRS Payment Plans: Installment Agreement Options & How to Apply

Types of IRS Payment Plans

The IRS offers several payment plan options depending on the amount owed and your financial situation. Choosing the right plan can save you hundreds or thousands in fees and interest.

Low-income taxpayers (income at or below 250% of the federal poverty level) can have setup fees waived or reimbursed. The IRS determines eligibility based on your most recent tax return. Use our Income Tax Calculator to estimate what you owe before applying.

Short-Term Payment Plan (180 Days)

The short-term payment plan is the simplest option. There is no setup fee, and you have up to 180 days to pay your balance in full. You can apply online, by phone, or by mail. To qualify, you must owe $100,000 or less in combined tax, penalties, and interest.

While there is no setup fee, interest and the failure-to-pay penalty continue to accrue until the balance is paid. The failure-to-pay penalty is 0.5% per month (0.25% per month if you filed on time and have an approved installment agreement) on the unpaid balance, up to a maximum of 25%. Interest is the federal short-term rate plus 3%, currently around 7% per year.

Long-Term Installment Agreement (Monthly Payments)

If you need more than 180 days to pay, a long-term installment agreement allows monthly payments for up to 72 months (6 years). For balances of $50,000 or less, you can qualify for a streamlined agreement without providing detailed financial information to the IRS.

Streamlined agreement requirements: You must owe $50,000 or less (including penalties and interest), agree to pay the full amount within 72 months or before the collection statute expires (whichever is shorter), be current with all filing requirements, and agree to direct debit payments (recommended for the lowest setup fee).

Minimum monthly payment: Your total balance divided by 72 months, or enough to pay the debt before the 10-year collection statute expires. For a $24,000 balance, the minimum payment would be approximately $334 per month ($24,000 / 72).

Direct debit advantage: Choosing direct debit (automatic bank draft) reduces the setup fee from $69 to $22 when applying online. It also reduces the monthly failure-to-pay penalty from 0.5% to 0.25% and eliminates the risk of missing a payment, which could default your agreement.

How to Apply Online (Fastest Method)

The fastest way to set up a payment plan is through the IRS Online Payment Agreement (OPA) tool at IRS.gov/OPA. Here is the process:

1. Create or log in to your IRS Online Account. You need an ID.me account to verify your identity. Have your Social Security number, photo ID, and a phone or email for verification ready.
2. Select "Set Up a Payment Plan." The system will show your current balance, including any penalties and interest that have accrued.
3. Choose your plan type. Select short-term (180 days) or long-term (monthly installments). If choosing long-term, enter your proposed monthly payment amount.
4. Select your payment method. Options include direct debit (lowest fee), payroll deduction, check/money order, debit card, or credit card. Direct debit from a bank account is strongly recommended.
5. Review and submit. You will see the setup fee, payment schedule, and terms. Submit your application and receive immediate confirmation. Most online applications are approved instantly.

Alternative methods: You can also apply by phone (800-829-1040), by mail using Form 9465 (Installment Agreement Request), or in person at a local IRS office. Phone and mail applications take 30 days or more to process.

Interest and Penalties During Payment Plans

Interest and penalties continue to accrue on your unpaid balance even with an approved installment agreement. Understanding these costs is important for deciding whether to pay faster or use other options:

• Interest rate: Federal short-term rate + 3%, compounded daily. Currently approximately 7% per year.
• Failure-to-pay penalty: 0.25% per month (with installment agreement) on the unpaid balance, up to 25% total
• Failure-to-file penalty: If you have not filed your return, 5% per month up to 25%. Always file on time, even if you cannot pay.

What if You Owe More Than $50,000?

If you owe between $50,001 and $100,000, you can still get an installment agreement, but it requires providing financial information to the IRS using Form 433-F (Collection Information Statement). The IRS will review your income, expenses, and assets to determine an acceptable payment amount.

For balances over $100,000, the IRS may require a more detailed financial analysis using Form 433-A. You may need to demonstrate that you cannot borrow the funds, have no liquid assets to apply, and that your proposed payment is the maximum you can afford. In these cases, consulting a tax professional or enrolled agent is highly recommended.

Offer in Compromise: Settling for Less

If you truly cannot pay your full tax liability, even over time, the IRS may accept an Offer in Compromise (OIC) to settle your tax debt for less than the full amount owed. The OIC process involves submitting Form 656 with a $205 application fee and demonstrating that paying the full amount would create economic hardship.

The IRS considers your income, expenses, asset equity, and ability to pay. The IRS acceptance rate for OICs is approximately 30-40%. Beware of "tax resolution" companies that promise to settle your debt for pennies on the dollar. The IRS has a free Pre-Qualifier tool on their website (IRS.gov/OIC) to estimate whether you might qualify.

Currently Not Collectible (CNC) status is another option if you cannot afford any payments. The IRS temporarily suspends collection activity, though interest and penalties continue to accrue. The IRS will periodically review your financial situation to determine if your ability to pay has changed. Learn about avoiding tax debt in our tax filing mistakes guide.

What Happens if You Default

Defaulting on an installment agreement can have serious consequences. Your agreement is considered in default if you miss a payment, fail to file future tax returns on time, fail to pay future tax liabilities, or provide inaccurate financial information.

If you default, the IRS may terminate the agreement and resume collection actions including federal tax liens, wage garnishments (levy), and bank account seizures. The failure-to-pay penalty also reverts from 0.25% to 0.5% per month. If you anticipate difficulty making a payment, contact the IRS before the due date to modify your agreement.

You can request to modify your installment agreement by calling the IRS at 800-829-1040 or using the Online Payment Agreement tool. Changes you can request include reducing your monthly payment, changing the payment date, converting to direct debit, or requesting a temporary payment suspension. Use our year-end tax planning checklist to stay ahead of future tax obligations.

Frequently Asked Questions

Related Articles