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Understanding IRS Payment Plans

Paying your tax bill in full is the best way to avoid penalties, interest, and collections. However, if the tax filing deadline is approaching and you don’t have the money to pay what you owe, you may be able to set up an IRS payment plan that buys you up to six years to pay.

How Do IRS Payment Plans Work?

The IRS offers payment plans for people who can’t pay their entire tax bills when they file. Short-term payment plans allow you up to 180 days to pay your bill in full. Long-term payment plans give you up to 72 months to pay your balance. Both short- and long-term plans have associated costs.

Penalties and Interest

Even after establishing a payment plan, the IRS charges late-payment penalties and interest on your outstanding balance until it’s paid in full. The current interest rate on unpaid taxes is 8% per year, compounded daily.

Fees

There’s no fee to apply for and set up a short-term payment plan online. Long-term payment plans have an online setup fee of $31 if you agree to automatic payments using direct debit, or $131 if you make manual payments. The IRS also charges transaction fees for online card payments.

Help for Low-Income Taxpayers

The IRS may waive or reduce certain fees for qualifying low-income taxpayers. Apply for fee reduction using IRS Form 13844. Additionally, you may be able to reduce the amount you owe through an offer in compromise if the IRS determines that you can’t afford to pay your outstanding tax bill.

Who Is Eligible for an IRS Payment Plan?

To see if you qualify for an IRS payment plan, start by filing your taxes. Even if you think you may be unable to pay, prepare and file your tax return by the filing deadline to avoid a late-filing penalty. Calculating what you owe on your tax return will help you determine whether you’re eligible to apply for a payment plan and which plan might work for you.

IRS Payment Plan Options

Plan	Eligibility	Terms
Short-term payment plan	Less than $100,000 in combined tax, penalties, and interest	Get an additional 180 days to pay your balance in full
Long-term payment plan	Less than $50,000 in combined tax, penalties, and interest	Make monthly payments for up to 72 months
Business payment plan	Less than $25,000 in combined tax, penalties, and interest from the current and preceding tax year	Make monthly payments for up to 24 months

Pros and Cons of IRS Payment Plans

Pros

• No need for loans or credit: You may pay less interest than with a high-interest credit card or personal loan.
• Avoid collections and liens: The IRS can place a lien against your property if you ignore your debt.
• Predictable budgeting: Regular monthly payments with a defined end date.

Cons

• You’ll pay interest and penalties: These add up over time.
• You’ll carry debt: This represents money you owe and a monthly payment you’ll have to meet.
• Your plan options are limited: Individual taxpayers can’t make payments on a balance of more than $50,000 for a long-term plan or $100,000 for a short-term plan.

How to Set Up a Payment Plan With the IRS

If you can’t pay your IRS tax bill in full, pay as much as you can and set up a payment plan to cover the rest. Individual taxpayers with $100,000 or less in combined debt or business taxpayers with up to $25,000 in combined debt can set up a payment plan online following these steps:

1. Find the exact amount you owe using your tax return or a balance notice you’ve received from the IRS.
2. Estimate how much you can pay monthly and how long you need to pay off your debt.
3. Visit the IRS payment plan portal to apply for your payment plan.
4. Be prepared to create an IRS account online if you don’t already have one.
5. Have your bank routing and account numbers ready if you’re planning to set up direct debit.

You can also apply for a payment plan by mail using IRS Form 9465. Or call the IRS at 800-829-1040 (for individual taxpayers) or 800-829-4933 (for businesses) to discuss your plan options by phone.

The Bottom Line

Getting hit with a tax bill you can’t pay is stressful. Setting up a payment plan with the IRS is one way to alleviate the stress—and make paying your tax bill manageable. Once you’ve worked out a payment plan, you may want to double-check your withholding to make sure you’re setting aside enough each paycheck to avoid another tax bill in the year to come.

For any mortgage service needs, contact O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey with ease.

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