Can You Go on a Payment Plan for Taxes? How Tax Payment Plans Work
Explore how tax payment plans offer flexible options for managing IRS debt, including eligibility, setup steps, and what to expect over time.
Owing taxes can be stressful, particularly if you cannot pay the full amount by the deadline. Tax authorities like the IRS and state agencies offer payment plans, allowing taxpayers to break up their balance into more manageable installments over time. These plans can help avoid severe consequences like property liens or asset levies, but they have specific rules and potential costs.
Who Qualifies for a Payment Plan
Eligibility for a federal tax payment plan hinges on meeting criteria set by the Internal Revenue Service. Generally, taxpayers who acknowledge their debt but cannot pay immediately may qualify. A primary requirement is being current with tax filings; all required returns must be filed, even if the tax due wasn’t paid. The IRS typically won’t approve a plan if returns are outstanding.
The total amount owed, including tax, penalties, and interest, also affects qualification for streamlined processes. Individuals owing $50,000 or less and businesses owing $25,000 or less combined generally qualify more easily for long-term plans, often through the IRS’s online tools.1Internal Revenue Service. Online Payment Agreement Application Balances exceeding these thresholds may still qualify, but the IRS might require detailed financial information to evaluate the taxpayer’s ability to pay.
A history of compliance can support eligibility. Taxpayers currently in an open bankruptcy proceeding are generally not eligible for an installment agreement.
State tax agencies often offer similar payment plans for state taxes, though specific rules vary. Common requirements include having filed all necessary state returns and meeting certain thresholds for the amount owed. Checking directly with your state’s department of revenue is advisable for precise criteria.
Types of Payment Plans
The IRS offers several types of payment plans to accommodate different financial situations. State tax agencies often provide comparable structures, though terms can differ. Understanding these options is the next step after determining eligibility.
Short-Term Arrangement
For those needing a little more time beyond the tax deadline, the IRS offers a short-term payment plan, providing up to 180 additional days to pay the balance in full. There is typically no setup fee for this option, according to the IRS website. However, interest and applicable penalties continue to accrue until the debt is fully paid. This arrangement is generally available for individuals owing less than $100,000 combined. Businesses usually need to contact the IRS directly to request it. Many states offer similar short-duration plans.
Long-Term Installment
When more than 180 days are needed, a long-term payment plan, known as an Installment Agreement (IA), allows monthly payments for up to 72 months (six years) for federal taxes.2Legal Information Institute (Cornell Law School). 26 CFR § 301.6159-1 – Agreements for Payment of Tax Liabilities in Installments The IRS provides streamlined online applications for those within the previously mentioned thresholds ($50,000 for individuals, $25,000 for businesses), provided all returns are filed. Unlike short-term plans, establishing a long-term IA involves a user fee, which varies based on application method and payment setup. Interest and penalties continue to accrue throughout the agreement’s life. State agencies also commonly offer installment agreements with varying fee structures and durations.
Partial Payment Agreement
If a taxpayer cannot pay the full tax debt even within the extended timeframe of a standard long-term agreement, the IRS might consider a Partial Payment Installment Agreement (PPIA). This allows smaller monthly payments based on an assessed ability to pay, potentially for less than the full amount owed before the Collection Statute Expiration Date (CSED) – typically 10 years from the assessment date – expires. Any remaining balance is generally not collectible after the CSED. Setting up a PPIA usually requires submitting detailed financial information (like Form 433-F, Collection Information Statement).3Internal Revenue Service. Form 433-F, Collection Information Statement The IRS periodically reviews the taxpayer’s financial situation, often every two years, and may adjust payments if circumstances change. Some states may offer analogous plans requiring similar financial disclosures.
Setting Up the Plan
Initiating a federal tax payment plan can be done through several pathways. The most common method for eligible taxpayers is the IRS’s Online Payment Agreement (OPA) tool, accessible via the IRS website.4Internal Revenue Service. Payment Plans, Installment Agreements This platform allows application for both short-term and long-term plans. Users typically need to verify their identity using their tax information.
Through the OPA tool, you can view your balance, select a plan type, propose a monthly payment amount, and choose a payment date. Setting up direct debit payments from a bank account often results in a lower setup fee for long-term agreements. As of early 2025, IRS information indicated varying fees based on setup method (online vs. phone/mail) and payment type (direct debit vs. other methods); these fees are subject to change. Low-income taxpayers may qualify for reduced or waived fees, potentially using Form 13844. The OPA system usually provides immediate notification of plan approval.
Taxpayers owing amounts above the OPA thresholds or preferring not to use the online system can apply by phone or mail. Form 9465, Installment Agreement Request, can be mailed. If owing more than $50,000, Form 433-F, providing detailed financial information, is generally required alongside Form 9465.5Office of Management and Budget. Instructions for Form 9465, Installment Agreement Request Applying by phone or mail typically involves higher setup fees for long-term plans and takes longer for approval, often 30 days or more.
Regardless of the method, establishing a long-term agreement requires formally agreeing to its terms, either electronically online or by signing Form 433-D if applying by phone or mail. State tax plan setup processes often mirror the federal approach, with many states offering online portals and requiring financial disclosures for larger debts. Setup fees and requirements vary by state.
Penalties for Missed Payments
Adhering to the payment plan terms is necessary to avoid further collection actions. Missing a scheduled payment can lead to the agreement’s termination. The IRS considers an agreement in default if a taxpayer fails to make a payment, fails to pay a new tax liability, or doesn’t provide updated financial information when requested.6Internal Revenue Service. IRM 5.14.11 Defaulted Installment Agreements, Terminated Agreements and Appeals
If a payment is missed, the IRS usually issues a warning notice (often Notice CP523) indicating the agreement is at risk and providing a deadline, typically 30 days, to take corrective action, usually by paying the overdue amount. Penalties and interest continue to accrue on the unpaid balance even while the plan is active.
Failure to resolve the default by the deadline allows the IRS to terminate the agreement. This makes the entire outstanding tax liability due immediately and removes the protections of the plan.
Following termination, the IRS can resume enforced collection activities, such as filing a Notice of Federal Tax Lien or issuing levies. A levy is the legal seizure of property, like funds from bank accounts or wage garnishments, authorized under the Internal Revenue Code.7Internal Revenue Service. What Is a Levy?
It may be possible to reinstate a defaulted agreement, often requiring payment of missed installments and potentially a reinstatement fee (currently $89, with possible reductions for low-income taxpayers, according to the IRS website).8Internal Revenue Service. Topic No. 202, Tax Payment Options Reinstatement is not guaranteed and may require updated financial information. State tax authorities generally follow similar default processes, potentially leading to state-level collection actions if an agreement is terminated.
Amending or Ending the Arrangement
Circumstances can change after a payment plan is established. The IRS allows taxpayers to request modifications to existing Installment Agreements. If financial hardship makes current payments unaffordable, you can contact the IRS, often needing to provide updated financial information (using forms like 433-F) to demonstrate the change. The IRS may agree to lower the monthly payment.
Conversely, if finances improve, you can increase payments or pay off the remaining balance early without prepayment penalties. Paying sooner reduces the total interest and penalties accrued. Your payoff amount can usually be found via your IRS Online Account or by contacting the IRS.
The IRS can also propose changes or terminate an agreement under specific conditions, such as if initial financial information was inaccurate, financial conditions significantly change, or the taxpayer fails to stay current on new tax obligations. This authority is outlined in Internal Revenue Code Section 6159.9FindLaw. 26 U.S. Code § 6159 – Agreements for Payment of Tax Liability in Installments
Before the IRS alters or terminates an agreement for these reasons (distinct from a simple missed payment), they generally must provide written notice at least 30 days in advance, explaining the reason. This allows time to respond or potentially appeal through the Collection Appeals Program. Taxpayers can also mutually agree with the IRS to modify or end an agreement at any time.
State tax agencies typically offer similar processes for amending or ending state tax payment plans, often requiring updated financial documentation for modifications and allowing early payoff. Procedures, notice periods, and appeal rights vary by state.