How to Set Up a Payment Plan With the IRS

What is an IRS payment plan?

An IRS payment plan, also known as an installment agreement, is an agreement between the IRS and a taxpayer to allow them to pay off their tax debt in installments rather than in a lump sum. Unlike IRS tax relief programs, payment plans don’t reduce your total tax debt — they simply help you break up your debt into more manageable payments.

You can generally choose between a short-term or long-term payment plan, depending on how much you owe. However, penalties and interest will still apply until the full debt is paid off.

Types of IRS payment plans

The IRS offers multiple types of payment plans. If you’re not sure which IRS tax payment plan is best for you, consider contacting the IRS or hiring a tax professional to help you understand and navigate your options.

Short-term payment plans

Short-term payment plans last for 180 days or less. You can apply for a short-term repayment plan if you owe less than $100,000 in combined tax, penalties and interest.

Long-term payment plans

Long-term payment plans, also called installment agreements or simple payment plans, last for more than 180 days. You can apply for an installment agreement if you owe $50,000 or less in combined tax, penalties and interest and if you’ve filed all required tax returns.

There are different types of long-term payment plans available, such as:

Simple payment plan

More than 90% of individual taxpayers qualify for a simple payment plan, according to the IRS. To qualify for this plan, applicants must owe $50,000 or less in combined tax, penalties and interest. Generally, you’ll get up to 10 years from the date your tax was assessed to pay your full tax debt. This 10-year deadline is known as the collection statute expiration date.

Guaranteed installment agreement

You may qualify for a guaranteed installment agreement if you:

• Owe $10,000 or less (excluding interest and penalties)
• Have filed your tax returns on time for the past five years
• Haven’t entered into an installment agreement for paying income tax
• Agree to pay the full debt within three years
• Aren’t able to pay the full tax debt when due

Partial payment installation agreement

If you can’t afford to pay your full tax debt, you may be eligible for a partial payment installment agreement. For this option, you’ll need to fill out a collection information statement and provide documentation about your financial situation. If you’re approved for this plan, the IRS will review your eligibility every two years to see if your financial situation has changed.

How to apply for an IRS payment plan

If you need to set up a payment plan to eliminate your tax debt, follow these steps:

1. Create an online account

First, you’ll need to create an IRS online account. To create an account, you’ll need to set up an ID.me account or sign in with an existing account.

2. Determine your total unpaid tax debt

You must file all back tax returns to determine your total tax balance before you can apply for an IRS payment plan. You can also request tax return information through your IRS account.

3. Choose your plan and gather information

You can also file by mail by submitting Form 9465: Installment Agreement Request.

Review your payment plan options and see which plan you qualify for. Gather any requested documentation that might be required, such as the balance due amount from your tax return. If you opt for a direct debit payment plan, you’ll need your bank routing and account numbers.

4. Complete a payment plan application

You can apply for a payment plan through the Online Payment Agreement tool in your online IRS account. Follow the instructions and provide all requested information and documentation.

5. Pay setup fees and start repayment

Once you’ve been approved for a plan, you may need to pay a setup fee, which varies based on your payment plan and your income.

You must manage your IRS installment plan payments responsibly. If you don’t, the IRS can cancel your installment agreement and put you in default for missing payments. If you need to view or change your agreement, you can do so through your online account.

How much does the IRS charge for a payment plan?

IRS payment plan costs vary based on the plan you qualify for. For long-term plans, fees are reduced if you opt in to automatic withdrawal payments from a checking or savings account through a direct debit installment agreement. IRS payment plan fees are also waived or reimbursed for low-income taxpayers who are below the federal poverty level.

With all plans, you’ll continue to accrue penalties and interest until your full debt is paid off.

Also, if you need to revise your payment plan or reinstate a plan after default, the IRS charges a $10 fee, though this fee can be waived for low-income taxpayers.

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Is an IRS payment plan right for you?

If you can’t afford to pay the IRS back what you owe in one lump sum, not addressing the problem now can make your tax debt even higher. Setting up a payment plan with the IRS can help you get back on track with what you owe.

Otherwise, Kevin Matthews, a certified public accountant (CPA), said individuals need to figure out which is more important to their financial situation: income or cash flow.

“If cash flow is what is more important, then we usually recommend that the client take a payment plan,” Matthews said. “[If] the client cannot afford to pay the large amount that they owe, this will allow clients to pay over time and reduce the stress of having to pay a large bill. The only major problem with this method is that penalties and interest will accumulate as the debt is paid off.”

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Bottom line

In an effort to recoup as much tax debt as possible, the IRS will work with you if you can’t pay all at once or struggle to repay your debt. Whether you owe less than $10,000 or more than $50,000, there’s a payment plan for you to settle your tax debt. It’s always in your best interest to set up a payment plan with the IRS to avoid garnishments, levies and liens.