IRS payment plan: How to set up an IRS tax payment plan if you can’t pay taxes

Owing the Internal Revenue Service (IRS) a large sum in taxes can be a stressful situation. The good news is that you can make an installment agreement request with the IRS.

Paying your tax bill in installment payments is a good option if you don’t have the cash on hand to pay off your tax debts—and it will help you minimize your penalties and interest on your unpaid tax bill. Ready to dive into the details? Learn how a payment plan for taxes could benefit you if you owe the IRS. Then learn about other IRS installment agreement form information.

What are IRS payment plans?

An IRS tax payment plan is an agreement to pay federal income tax owed over a specified time. You can set up a short- or long-term installment plan:

• Short-term payment plan: With a short-term tax payment plan, you pay off tax debt within 180 days. You’ll likely be eligible for a short-term plan if you owe less than $100,000 in combined tax, penalties, and interest.
• Long-term payment plan: With a long-term installment plan, you have 180 day to ten years) to pay off tax debt. You’re eligible for this payment plan if you owe $50,000 or less in combined tax, penalties, and interest—and have filed all required returns.

You can set up monthly payment using Direct Debt, Direct Pay, money order, credit, or debit card for both methods.

IRS payment plan fees

When you set up an installment plan, the IRS charges interest, penalties, and a setup fee, but the amounts differ based on the payment plan.

• Short-term plans: There’s no fee for setting up a short-term plan, but interest and the late-payment penalty continue to accrue until the tax debt is completely paid off.
• Long-term plans: A setup fee normally applies for long-term payment plans. If you’re a low-income taxpayer, you may qualify to have the fee waived or reimbursed. In addition, if you filed your return on time, the late-payment penalty rate is reduced while an installment agreement is in effect. The late payment penalty accrues at the rate of 0.25% per month, instead of up to 0.5% per month.

How to set up an IRS payment plan

You can set up an IRS payment plan by requesting an installment agreement through an online payment agreement (OPA) or by filing IRS Form 9465. Both methods for applying for a tax payment plan have the same outcome—you pay the IRS what you owe—but the process, fees, and eligibility differ.

What is an IRS Online Payment Agreement?

The IRS Online Payment Agreement (OPA) is an online method you can use to set up a payment plan. Use the OPA system if you owe $50,000 or less in total tax, penalties, and interest. OPA shows an immediate decision on accepting your payment plan.

What is IRS Form 9465?

Form 9465: Installment Agreement Request is a tax form used to request a monthly installment plan if you can’t use the online method, can’t pay the full amount you owe on your tax return, or if your tax bill (including interest and fees) falls in a certain range.

Use Form 9465 if you have already filed your return and:

• Owe more than $50,000 and can pay your tax balance within ten years
• Owe more than $25,000, and you need to create a direct debit installment agreement

You will get a mailed response if the IRS accepts your payment agreement via Form 9465.

Installment agreement fees, by payment type

Note: You can request an installment agreement amendment using the IRS Online Payment Agreement tool for $10.

Alternatives to IRS installment agreements

Paying off taxes with IRS installment payments can be more expensive than other ways to pay. You might want to consider other payment methods, which could reduce or eliminate interest charges and other fees:

• Paying by credit card (If the interest rate is low, this could be a manageable option. But it still requires careful planning to avoid long-term debt.)
• Borrowing from your 401(k) (If IRS payments are too high, penalties and interest can exceed the 10% early withdrawal penalty. Careful analysis is key to making the best financial choice.)
• Filing for a short-term extension—up to 180 days. This option has:
  • No fee
  • Penalty of 0.5% per month on unpaid balance
  • Interest of short-term federal rate plus 3% (interest might change each quarter)
• Completing IRS Form 1127: Application for Extension of Time for Payment of Tax Due to Undue Hardship–this gives you an extended six months to pay tax debts, without interest, if you’re in a financial situation of hardship.

Carefully evaluate the most financially sound option.

If I set up an IRS installment agreement form, can I change or stop it?

After you’ve set up your payment plan and the IRS approves it, you can request a change or end the agreement. This request won’t make the time you have to pay your taxes longer.

Get help setting up an IRS installment plan

If you owe taxes but can’t pay, we can help you determine the best course of action. Whether you choose to file with a local tax professional or file with H&R Block Online, you can rest assured you’ll get the help you need.