How to Create an IRS Payment Plan (Installment Agreement)

If you owe federal taxes but cannot afford to pay your entire balance at once, you may be able to set up an installment agreement with the Internal Revenue Service (IRS). An installment agreement allows you to make monthly payments over time rather than paying your entire tax liability immediately, while keeping your account in good standing and avoiding aggressive collection actions (such as bank levies or wage garnishments). 

This guide explains how IRS payment plans work, who may qualify, how to apply, and what to expect after your plan is approved. 

What Is an IRS Installment Agreement? 

An IRS installment agreement, also called a payment plan, is an arrangement that allows a taxpayer to pay an outstanding federal tax balance through scheduled payments over time. The IRS offers several payment options depending on the amount owed, the taxpayer's circumstances, and how quickly the balance can be paid. 

It is important to understand that an installment agreement does not eliminate the tax debt. Interest and applicable penalties generally continue to accrue until the balance is paid in full. 

Prerequisites Before Applying 

Before applying for an IRS payment plan, you must meet the following baseline requirements:  

• Filing Compliance: All required tax returns from prior years must be filed.  
• Not in Active Bankruptcy: Taxpayers in active bankruptcy proceedings are generally ineligible for standard installment agreements. More information here: Installment agreements and bankruptcy 
• Current Payments: Self-employed individuals or businesses must be current on estimated tax payments or payroll tax deposits for the current year.  

Before requesting an installment agreement, make sure all required federal tax returns have been filed. For individuals, the IRS generally requires taxpayers to be current with their filing and payment requirements before a payment plan can be established. You should also review your current IRS balance and determine how much you can realistically afford to pay each month. 

If you can pay the balance in full without an installment agreement, doing so may reduce the additional interest and penalties that would otherwise continue to accrue. 

Types of IRS Payment Plans 

The IRS offers different agreement tiers depending on the total balance owed (tax, penalties, and interest combined) and whether the taxpayer is an individual or a business.  

For Individual Taxpayers 

For Businesses 

• In-Business Trust Fund / Payroll Taxes: Businesses owing $25,000 or less in combined payroll taxes can set up an In-Business Trust Fund Express Installment Agreement for up to 24 months.  
• Out-of-Business Sole Proprietorships: Qualify under individual Simple Payment Plan thresholds (up to $50,000).  

A short-term payment plan may be available if you can pay your balance within 180 days. 

For qualified individuals, the IRS currently allows online applications for short-term plans when the total balance is less than $100,000 in combined tax, penalties, and interest. There is generally no setup fee for a short-term payment plan, although interest and applicable penalties continue to accrue until the balance is paid. 

A long-term payment plan allows the taxpayer to make monthly payments. Individuals may generally qualify to apply online for a Simple Payment Plan if they owe $50,000 or less in combined tax, penalties, and interest and have filed all required returns. 

The IRS generally expects the liability to be paid within the applicable collection period. For many taxpayers, the IRS collection period is generally up to 10 years, although various circumstances can extend or suspend that period. 

Application Methods & Associated Setup Fees 

The fee to establish an installment agreement depends heavily on how you apply and how you choose to make monthly payments.  

As of the IRS's current published guidance, long-term payment-plan fees include: 

Note: Setup fees are waived or reduced for low-income taxpayers ($0 for direct debit, $43 for non-direct debit, which may be reimbursed upon completion).  

Interest and applicable penalties continue to accrue until the balance is paid in full. The IRS may also charge a fee to modify or reinstate an existing payment plan. Because IRS fees can change, taxpayers should verify the current fee schedule before submitting an application. 

Step-by-Step Guide to Applying Online (Recommended) 

Applying online via the IRS Online Payment Agreement (OPA) system provides an immediate decision and charges the lowest setup fee.  

1. Gather Required Information: 
   1. Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) / EIN for businesses. 
   2. Your tax filing status and balance due. 
   3. Bank account and routing numbers (if setting up Direct Debit). 
2. Access the IRS Online Tool: 
   1. Go to the official IRS website (IRS.gov/payments). 
   2. Select "Apply Online for a Payment Plan". 
3. Verify Identity: 
   1. Log in or create an ID.me account to verify your identity securely. 
4. Select Plan Type & Payment Details: 
   1. Choose between a short-term (under 180 days) or long-term plan.  
   2. Select your payment method (Direct Debit is strongly recommended to lower setup costs and avoid accidental defaults).  
   3. Specify your monthly payment date and installment amount. 
5. Review and Submit: 
   1. Review the terms and submit the application for real-time confirmation. 

Alternative Application Methods 

If you cannot verify your identity online or owe over $50,000, use one of these alternative methods:  

• By Mail (Form 9465): 
• Fill out IRS Form 9465 (Installment Agreement Request). 
• If owing over $50,000, attach Form 433-F (Collection Information Statement) detailing income, expenses, and assets.  
• Mail Form 9465 to the address listed in the form's instructions. 
• By Phone: 
• Call the IRS Individual customer service line at 1-800-829-1040 (or the business line at 1-800-829-4933). 

Can You Change an Existing Payment Plan? 

In many cases, taxpayers can use the IRS Online Payment Agreement tool to make changes to an existing plan, including: 

• Changing the monthly payment amount 
• Changing the payment date 
• Converting an existing agreement to a Direct Debit agreement 
• Updating bank account information for a Direct Debit agreement 
• Reinstating a plan after default 

The IRS may charge a fee for certain changes or reinstatements. 

What If You Cannot Afford the Required Payment? 

An installment agreement is not the only option available to taxpayers who cannot pay their tax debt in full. 

Depending on your financial circumstances, you may qualify for another IRS collection alternative. These options can have different eligibility requirements and may require detailed financial information. 

If you cannot afford the payment proposed by the IRS or believe the available payment options do not address your circumstances, consider speaking with us before entering into an agreement. 

Important Considerations During a Payment Plan 

• Interest & Penalties Continue: Entering an installment agreement does not stop interest or late-payment penalties from accruing. However, the late-payment penalty rate drops from 0.5% per month to 0.25% per month while an approved plan is active.  
• Future Tax Refunds Will Be Applied: Any future federal or state tax refunds will automatically be seized by the IRS and applied toward your outstanding balance until it is paid in full (this does not count as your required monthly payment).  
• Maintain Ongoing Compliance: You must file all future tax returns on time and pay any future tax liabilities in full to keep your installment agreement active and avoid default. 
• Consider your other options. Depending on your circumstances, another IRS collection option may be more appropriate than a standard installment agreement. 
• Check the current IRS requirements. Eligibility thresholds, fees, and payment-plan procedures can change. 

Disclaimer: This article is intended for general educational purposes only and should not be considered tax, legal, or financial advice. IRS rules and procedures may change. Taxpayers with significant or complicated tax liabilities should consult us regarding their individual circumstances. 

Helpful IRS Links 

• IRS Payment Plans & Installment Agreements Main Page 
• IRS Form 9465 Instructions 
• Watch: IRS Payment Plan Overview: This video explains how IRS payment plans work, including balance tiers and key updates