Every year, millions of taxpayers face an unexpected challenge: they file their return, only to discover that they owe more than they can afford to pay right away. The good news is that the Internal Revenue Service (IRS) offers several options to help. From short-term extensions to long-term installment agreements, the IRS provides structured payment plans so you can meet your obligations without overwhelming financial stress. This guide explains how IRS payment plans work, how to apply, and what to expect.
Table of Contents
- Overview of IRS Payment Plans
- Short-Term Payment Extensions
- Long-Term Installment Agreements
- Eligibility Requirements
- How to Apply Online
- Setup Fees, Interest, and Penalties
- Direct Debit vs. Manual Payments
- Modifying or Cancelling an Installment Plan
- Alternatives to Installment Plans
- Frequently Asked Questions
- Helpful IRS Resources
1) Overview of IRS Payment Plans
The IRS recognizes that not every taxpayer can pay their bill in full on Tax Day. Instead of ignoring the balance (which leads to penalties and possible collection actions), you can request a payment plan. The two most common types are:
- Short-Term Payment Plans: For balances you can pay off within 180 days.
- Long-Term Installment Agreements: For balances requiring monthly payments over time.
Both options stop more aggressive IRS collection actions as long as you make payments as agreed.
2) Short-Term Payment Extensions
If you can pay your bill within six months (180 days), a short-term plan is usually the simplest solution.
- No setup fee – you only owe accrued interest and penalties until paid off.
- Balance limit: Generally available if you owe less than $100,000 in combined tax, penalties, and interest.
- Payment method: Online transfers, checks, debit/credit cards.
3) Long-Term Installment Agreements
If you cannot pay within 180 days, you may qualify for a long-term installment agreement.
- Setup fees: Range from $31 (online, direct debit) to $225 (paper, manual payments). Low-income taxpayers may qualify for fee waivers.
- Balance limit: Usually up to $50,000 in combined tax, penalties, and interest.
- Monthly payments: Can be spread out, typically up to 72 months.
Direct debit is strongly encouraged, as it lowers fees and ensures timely payments.
4) Eligibility Requirements
To qualify for an IRS installment agreement, you generally must:
- Have filed all required tax returns.
- Not be in bankruptcy proceedings.
- Owe below the IRS’s balance limits ($100,000 for short-term, $50,000 for long-term streamlined agreements).
5) How to Apply Online
You can request a plan quickly online through the IRS Online Payment Agreement tool:
- Go to IRS Online Payment Agreement.
- Log in with your IRS account or ID.me credentials.
- Select the type of plan (short-term or long-term).
- Enter bank details if setting up direct debit.
- Submit and save confirmation.
Approval is usually automatic if you meet the streamlined criteria.
6) Setup Fees, Interest, and Penalties
Even on a payment plan, you will still accrue:
- Interest: Compounded daily at the federal short-term rate + 3%.
- Failure-to-pay penalty: 0.25% per month while on a plan (instead of 0.5% if you had no plan).
- Setup fees: $0 for short-term, $31–$225 for long-term (depending on method).
7) Direct Debit vs. Manual Payments
Direct debit:
- Lower setup fees.
- Less risk of missed payments.
- Automatic withdrawals until balance is paid.
Manual payments: Higher fees, but offer more flexibility (you must remember to pay monthly).
8) Modifying or Cancelling an Installment Plan
If your financial situation changes, you can request to modify or terminate your installment agreement. For example:
- Change the monthly payment amount.
- Switch to direct debit.
- Cancel the plan if you’re able to pay in full.
The IRS may charge a small fee for modifications, unless you are low-income.
9) Alternatives to Installment Plans
- Offer in Compromise: Settle for less than the full amount if you can prove inability to pay.
- Currently Not Collectible status: Temporary pause in IRS collection activity if you cannot pay at all.
- Credit/loan options: In some cases, borrowing may cost less in interest than IRS penalties.
10) Frequently Asked Questions
Will setting up a payment plan hurt my credit?
No. The IRS does not report to credit bureaus. However, tax liens (rare under current law) could impact credit.
Can I have more than one IRS payment plan?
No. You can only have one active installment agreement at a time.
What if I miss a payment?
Missing a payment may default the agreement. The IRS can reinstate, but penalties/interest continue.
How quickly will my plan be approved?
Streamlined agreements are usually approved instantly online if you meet the criteria.
Is there a limit to how much I can owe?
Yes. Streamlined plans are capped at $50,000 for long-term and $100,000 for short-term online applications. Higher balances require additional documentation.
11) Helpful IRS Resources