A payment plan, also known as an installment agreement, allows taxpayers to pay their owed taxes over an extended period. If you believe you can’t pay your taxes in full by the original due date, requesting a payment plan can beis a sensible option.
What happens when I request a payment plan?
When you request a payment plan (installment agreement), with certain exceptions, the IRS is generally prohibited from levying and the IRS’s time to collect is suspended or prolonged while an Installment Agreement (IA) is pending. An IA request is often pending until it can be reviewed, and an IA is established, or the request is withdrawn or rejected.
If the requested IA is rejected, the running of the collection period is suspended for 30 days. Similarly, if you default on your IA payments and the IRS proposes to terminate the IA, the running of the collection period is suspended for 30 days. Lastly, if you exercise your right to appeal either an IA rejection or termination, the running of collection period is suspended by the time the appeal is pending to the date the appealed decision becomes final.
Payment plans cost and fees
If the IRS approves your payment plan (installment agreement), one of the following setup fees will be charged to cover the cost of providing the payment plan (installment agreement). For individuals who establish a payment plan (installment agreement) online, balances over $25,000 must be paid by Direct Debit. For businesses who establish a payment plan (installment agreement) online, balances over $10,000 must be paid by Direct Debit.
Short-term payment plans
- After applying for a short-term payment plan, payment options include:
- Pay directly from a checking or savings account (Direct Pay) (Individuals only)
- Pay electronically online or by phone using Electronic Federal Tax Payment System (EFTPS) (enrollment required)
- Pay by check, money order or debit/credit card
Costs
- Apply online: $0 setup fee (individuals only)
- Apply by phone, mail, or in-person: $0 setup fee (up to 180 days)
- Plus accrued penalties and interest until the balance is paid.
Long-term payment plan (Installment Agreement)
For the Long term payment plan, you would have two options:
First Option: Pay through Direct Debit (automatic monthly payments from your checking account), also known as a Direct Debit Installment Agreement (DDIA).
Costs
- Apply online: $31 setup fee
- Apply by phone, mail, or in-person: $107 setup fee
- Low income: Apply online, by phone, or in-person: setup fee waived
- Plus accrued penalties and interest until the balance is paid in full.
Second Option: Payment options for the second include:
- Make monthly payment directly from a checking or savings account (Direct Pay) (Individuals only)
- Make monthly payment electronically online or by phone using Electronic Federal Tax Payment System (EFTPS) (enrollment required)
- Make monthly payment by check, money order or debit/credit card
Cost
- For payment plans lasting over 180 days:
- Online Setup (IRS Portal): An initial setup fee of $130 applies.
- Phone Setup: If you set up the plan over the phone, the fee increases to $225.
- Low-Income Taxpayers: If you qualify as a low-income taxpayer, you may be eligible for a reduced fee of $43, which could even be waived based on your personal circumstances.
Changing an existing payment plan
- Pay through Direct Debit
- Make monthly payment directly from a checking or savings account (Direct Pay) (Individuals only)
- Make monthly payment electronically online or by phone using Electronic Federal Tax Payment System (EFTPS) (enrollment required)
- Make monthly payment by check, money order or debit/credit card
Costs
- Apply online: $10 fee
- Apply by phone, mail or in-person: $89 fee
- Low income:
- Apply online: $10 fee, which may be reimbursed if certain conditions are met
- Apply by phone, mail or in-person: $43 fee, which may be reimbursed if certain conditions are met
- $0 fee for changes made to existing Direct Debit Installment Agreements
Interest rates
The IRS charges interest on the outstanding balance. As of the first quarter of 2024:
- Individual Underpayments: Interest accrues at an annual rate of 8%.
- Small Corporate Underpayments: The same rate of 8% applies.
- Large Corporate Underpayments: Interest accrues at an annual rate of 10%.
Benefits of paying on time
Paying your taxes on time has several advantages:
- Avoid Additional Charges: Prevent accruing extra interest and penalties.
- Protect Future Refunds: Avoid offsetting your future tax refunds.
- Facilitate Loan Approvals: Timely tax payments improve your chances of obtaining loans
Am I eligible to apply online for a payment plan?
Your specific tax situation will determine which payment options are available to you. Payment options include full payment, short-term payment plan (paying in 180 days or less) or a long-term payment plan (installment agreement) (paying monthly).
If you are an individual, you may qualify to apply online if:
- Long-term payment plan (installment agreement): You owe $50,000 or less in combined tax, penalties and interest, and filed all required returns.
- Short-term payment plan: You owe less than $100,000 in combined tax, penalties and interest.
If you are a business, you may qualify to apply online if:
- Long-term payment plan (installment agreement): You have filed all required returns and owe $25,000 or less in combined tax, penalties, and interest.
Please note that if you are a sole proprietor or independent contractor, apply for a payment plan as an individual.
IRS Direct Pay
IRS Direct Pay is a secure service you can use to pay your taxes for Form 1040 series, estimated taxes or other associated forms directly from your checking or savings account at no cost to you. You’ll receive instant confirmation after you submit your payment. With Direct Pay, you can use the “Look Up a Payment” feature to view your payment details and status, all you would need is the confirmation number to access the “Look Up a Payment” Feature. You can opt in to receive email notifications about your payment. You can also modify or cancel your payment up to two business days before your scheduled payment date.
Direct Pay is only available during the following hours:
- Monday to Saturday: Midnight to 11:45 p.m. ET
- Sunday: 7 a.m. to 11:45 p.m. ET
Other outages may occur, and you would be notified whether Direct Pay is available before you start your session.
Please note that Direct Pay availability has no bearing on your due date, so plan ahead to ensure timely payment.
IRS Direct Pay won’t accept more than two payments within a 24-hour period, and each payment must be less than $10 million. For larger electronic payments, use EFTPS or same-day wire. Remember, it’s essential to explore payment options if you can’t pay the full amount due. Visit IRS.gov/payments to explore online payment options and find the best solution for your situation.
