A guide to setting up an IRS installment agreement when you can't pay your full tax bill, including payment plan types, application process, costs, and alternatives.
Calculate your total tax debt including penalties and interest
Log in to your IRS online account at irs.gov/account to see your exact balance. Your balance grows daily due to interest (currently about 8% annually) and the failure-to-pay penalty (0.5% per month, reduced to 0.25% once an installment agreement is in place).
If you owe $10,000 or less, apply for a guaranteed installment agreement
The IRS must approve your request if you owe under $10,000, have filed all required returns, haven't had an installment agreement in the past 5 years, and can pay the balance within 3 years. This is called a guaranteed installment agreement — no financial disclosure required.
If you owe $10,001-$50,000, apply for a streamlined installment agreement
Streamlined agreements don't require a financial statement (Form 433-F). You must pay the balance within 72 months or before the collection statute expires (10 years from assessment), whichever is shorter. The IRS approves most of these automatically.
If you owe over $50,000, prepare to submit a Collection Information Statement
For debts over $50,000, the IRS requires Form 433-F (or 433-A for individuals / 433-B for businesses) detailing your income, expenses, and assets. The IRS uses this to determine what you can afford to pay monthly. You may need to provide bank statements and proof of expenses.
Consider a short-term payment plan if you can pay within 180 days
Short-term plans (up to 180 days) have no setup fee. Interest and the failure-to-pay penalty still apply. If you can borrow from savings or a 0% credit card to pay within 180 days, this is the cheapest option after paying in full.
Apply for the Installment Agreement
Apply online at irs.gov/payments/online-payment-agreement-application for balances under $50,000
The Online Payment Agreement tool is the fastest way to apply. It's available for individuals who owe $50,000 or less and businesses that owe $25,000 or less. You'll get immediate approval in most cases. You'll need your SSN, filing status, and the exact amount on your most recent notice.
Alternatively, mail Form 9465 (Installment Agreement Request) to the IRS
Form 9465 is required for mail applications. Processing takes 30-60 days. Include your proposed monthly payment amount and preferred payment date. If you owe over $50,000, attach Form 433-F to Form 9465.
Choose your payment method: direct debit (DDIA), payroll deduction, check, or online
Direct Debit Installment Agreements (DDIA) have the lowest setup fee: $31 online vs $130 for non-direct-debit agreements. DDIA is also required for balances between $25,000 and $50,000 under the streamlined process.
Select a monthly payment amount that works for your budget
The minimum payment is your balance divided by 72 months. On a $30,000 debt, that's about $417 per month. You can pay more to reduce interest charges. The IRS may reject a payment amount that's too low if they believe you can afford more based on your financial information.
Choose your monthly payment date (any day from the 1st to the 28th)
Pick a date shortly after your paycheck arrives so the money is available. The 15th or 28th of the month are popular choices. Avoid the 29th-31st because not all months have those dates. You can request a date change later if needed.
Understand Costs and Terms
Pay the setup fee: $31 for direct debit online, $130 for non-direct-debit online, $225 by mail
Low-income taxpayers (income below 250% of the federal poverty level) can apply for fee waivers or reductions. The fee is reduced to $43 for low-income taxpayers setting up non-direct-debit agreements, and waived entirely for direct debit.
Understand that interest continues to accrue on the unpaid balance
The interest rate is currently about 8% per year (federal short-term rate plus 3%). On a $20,000 balance, that's roughly $1,600 in interest the first year. The sooner you pay off the balance, the less total interest you'll pay.
Know that the failure-to-pay penalty drops from 0.5% to 0.25% per month with an agreement in place
This reduction saves real money. On a $20,000 balance, the penalty drops from $100/month to $50/month. Over 36 months, that's a savings of $1,800 in penalties. The penalty continues until the balance is paid or reaches the 25% maximum.
Note that the IRS will file a federal tax lien if you owe over $10,000
A tax lien is a public record that attaches to your property and may affect your credit score. For balances between $10,000 and $25,000, you can avoid the lien by setting up a DDIA. Above $25,000, a lien is almost always filed.
Maintain Your Agreement
Make every payment on time — a missed payment can default the agreement
Set up automatic payments through direct debit to avoid missing a payment. If you miss a payment, the IRS will send a CP523 notice giving you 30 days to catch up. Defaulting means the IRS can resume collection actions including levies and garnishment.
File all future tax returns on time and pay current taxes in full
Failing to file or pay current taxes is a default condition. If you can't pay next year's taxes in full, you may need to modify your existing agreement. The IRS can terminate the agreement if you accrue new tax debt while paying off the old one.
Contact the IRS immediately if your financial situation changes
If you lose your job, have a medical emergency, or experience another financial hardship, call the IRS at 800-829-1040 before you miss a payment. The IRS can temporarily reduce or suspend payments. Proactive communication prevents default.
Request a modification if you need to change your payment amount or date
You can modify your agreement online at irs.gov/payments if it was set up online. The modification fee is $10. Changes include adjusting the monthly amount, changing the payment date, or converting to direct debit.
Know that tax refunds will be applied to your balance while the agreement is active
Any refund from future tax returns will be applied to your outstanding balance automatically. This is normal and expected. It reduces your balance faster. Adjust your W-4 withholding so you're not overpaying and relying on refunds.
Consider Alternatives to Installment Agreements
Explore an Offer in Compromise (OIC) if you can't afford to pay the full amount
An OIC lets you settle for less than you owe. The IRS accepts about 30-40% of OIC applications. You must prove your assets plus future income can't cover the full debt. The application fee is $205 (waived for low-income). Pre-qualify at irs.gov/payments/offer-in-compromise-pre-qualifier.
Request Currently Not Collectible (CNC) status if you have severe financial hardship
CNC temporarily halts all collection activity. The IRS stops levies, garnishments, and contact. Your debt doesn't go away — interest and penalties continue — but you won't be forced to pay. The IRS reviews CNC status annually based on income changes.
Consider paying with a personal loan or 0% APR credit card if the rate beats IRS interest
IRS interest is currently about 8% plus the 0.25-0.5% monthly penalty. If you can get a personal loan at 6% or a 0% APR credit card for 18 months, you'll save money vs. an IRS installment agreement. Run the numbers before borrowing.
Check if you qualify for penalty abatement (first-time penalty waiver)
If this is your first penalty in 3 years and you've filed all returns, the IRS may waive the failure-to-file and failure-to-pay penalties. Call 800-829-1040 and ask for first-time penalty abatement. On a $10,000 balance, penalty abatement could save $2,000+.
Frequently Asked Questions
How much does an IRS installment agreement cost to set up?
The IRS charges a $31 setup fee for direct debit agreements and $130 for non-direct-debit agreements if you apply online. Paper applications cost $225. Low-income taxpayers (below 250% of the federal poverty level) pay a $0 setup fee for direct debit plans. Tax laws change frequently — verify current rules with the IRS or a tax professional.
Can I get an IRS payment plan if I owe more than $50,000?
Yes, but you will need to file Form 9465 along with a Collection Information Statement (Form 433-A or 433-F) detailing your finances. Balances under $50,000 qualify for a streamlined installment agreement that skips the financial disclosure. For debts above $50,000, the IRS typically requires a 72-month maximum term and may file a federal tax lien.
What happens if I miss a payment on my IRS installment agreement?
A missed payment triggers a default notice (CP523), giving you 30 days to respond before the IRS terminates the agreement. Once terminated, the full remaining balance becomes due immediately, and the IRS can begin collection actions including wage garnishment and bank levies. Contact the IRS before your due date if you anticipate difficulty — they can sometimes restructure the plan.
Does interest still accrue while on an IRS payment plan?
Yes, penalties and interest continue to accumulate on the unpaid balance throughout the life of the installment agreement. The failure-to-pay penalty is reduced from 0.5% to 0.25% per month while an active agreement is in place. Interest compounds daily at the federal short-term rate plus 3%, which means paying off the balance faster saves significant money over the life of the plan.
Is an Offer in Compromise better than a payment plan?
An Offer in Compromise (OIC) lets you settle your tax debt for less than the full amount owed, but the IRS accepts fewer than 40% of OIC applications. You must prove that paying the full amount would create financial hardship or that the amount owed is disputed. The $205 application fee is non-refundable, and the process takes 12-24 months. A payment plan is faster to set up and guaranteed if you meet the basic requirements. Tax laws change frequently — verify current rules with the IRS or a tax professional.