Updated: December 28, 2024

By: Kari Brummond, EA|Reviewed by: Charles P. Corsello, EA

Frequently Asked Questions Regarding IRS Installment Agreements

If you can't pay your taxes in full, you may want to set up an IRS installment agreement. There are a few different options, and to help you out, this post outlines some of the questions people frequently have about installment agreements. To get help now, use TaxCure to find an experienced tax pro or explore the following to learn more.

Table of Contents

General Questions - Installment Agreement Overview

What is an IRS installment agreement?

An installment agreement is where you make monthly payments (aka installments) on your IRS tax debt.

How do you apply for an installment agreement?

If you want to request an installment agreement, you can do so on the IRS website, by mailing or e-filing Form 9465, or by caling the IRS with the info from Form 9465.

What are the types of installment agreements?

The IRS offers the following options:

Guaranteed - owe $10,000 or less, can pay off within three years.
Streamlined - owe $50,000 or less, can pay off within six years.
Non-streamlined or verified - owe over $50,000, need more time to pay, or cannot pay off the balance by the collection expiration date.

There are also partial payment installment agreements where you make monthly payments until the collection statute expires and then the IRS writes off the remaining tax debt.

Is there a fee to set up an installment agreement?

The IRS charges a $10 fee to set up payments online or $89 to apply through the mail or over the phone. If you qualify as low-income, you only have to pay $43 to set up the plan over the phone or through the mail, and the IRS may waive this amount when you get to the end of your agreement.

Can I use the IRS’s Online Payment Agreement to set up an Installment Agreement for the current tax year?

Yes. If you have filed your tax return for the year but you don’t have money to pay, you don’t have to wait for a bill to set up a payment plan. If you owe less than $50,000, you can use the IRS’s website to request an online installment agreement. You can also use the website to set up payments if you owe less than $100,000 and can pay it off within 180 days.

Alternatively, you may also use Form 9465 (Installment Agreement Request) which you can simply attach to your tax return. If you can afford to pay your balance within 180 days, don’t file that form. Instead, call the IRS at 1-800-829-1040.

Can I set up an installment agreement if I have unfiled taxes?

The IRS requires you to be up to date on your filing requirements. Generally, you only have to file the last six years of returns, but depending on the situation, the IRS may require you to file more years of unfiled returns.

Can businesses set up installment agreements?

Yes, the IRS allows businesses to make payments on back taxes. If you're still in operation, you generally must be able to pay off the debt within two years. If you are no longer operating, you may get longer. The rules are stricter for businesses than individuals, especially if you're dealing with trust fund taxes.

What to Expect While You're on an IRS Installment Agreement

How do I make payments to the IRS?

When you apply for your payment plan, you will let the IRS if you want to make automatic payments from your bank account or pay manually. You can pay in the following ways.

Direct debit from your bank account (IRS prefers)
Payroll debits from your work paycheck
Manual bank account payments through the IRS website.
Mailing in money orders or personal checks
Electronic Federal Tax Payment System (EFTPS)
Credit or debt cards for a processing fee

Can I make extra payments?

Yes, if you want to pay off the balance sooner, you can make extra payments. You can mail or make manual payments online at any point while you have an installment agreement.

Will the IRS take my tax refunds?

While you're on an installment agreement, the IRS will seize your tax refunds and apply them to your balance due.

What is the interest rate on IRS installment agreements?

While an installment agreement helps prevent liens and levies, the IRS still continues charging interest on the balance due. The rates the IRS charges are different for individuals and corporations. Interest rates are updated quarterly. The rate that is charged for individuals and corporations with small underpayments is the short-term rate plus three percentage points. For corporations with large underpayments (100k+), the rate is the federal rate plus five points. As of Q1 2025, the rate is 7% for individuals and most businesses, and it is 9% for large corporate underpayments.

Are there penalties on payment plans?

Yes, the IRS will continue to assess the failure to pay penalty on your account. However, this penalty will drop to just .25% per month. For example, if you owe $10,000, the penalty is $25 per month.

Can the IRS levy my property if I am in an Installment Agreement?

The IRS usually does not levy your bank account, wages, or property if you are in an Installment Agreement.

Can the IRS issue a tax lien if I am in an Installment Agreement?

Yes, the IRS can issue a tax lien while an Installment Agreement is in place. That secures the IRS’s interest against other creditors. Specifically, IRS will generally issue a Notice of Federal Tax Lien if an individual taxpayer owes between $25k-$50k and sets up an IA that is not via payroll deduction or direct debit. Moreover, IRS will generally issue a Notice of Federal Tax Lien if the taxpayer obtains a payment plan for over $50k.

Does an IRS payment plan affect my credit score?

No, the IRS doesn't report tax debts to the credit bureaus. However, if you apply for a loan, you will have to reveal that you are making these payments, and the lender will consider them when calculating your debt to income ratio.

What if I miss an IRS Installment Agreement Payment?

If you miss a payment, you are no longer compliant with the terms of your installment agreement. The IRS may send you Notice CP 523. or Letter 2975 to let you know that they are moving forward with levying your assets or income. In most situations, there are other options. You may be able to restructure your installment agreement, change your payment amount, or pause payments if you are Currently Not Collectible. Typically, the IRS gives taxpayers a chance to make up their missing payments, and the agency generally won't terminate your agreement if you fix the situation within 30 days.

Can You Have Multiple IRS Payment Plans?

An individual or business can only have one payment plan with the IRS. If you get behind on your taxes, a tax pro can help you set up a payment plan with the IRS. Generally, the terms of most IRS payment plans state that you go into default if additional taxes are assessed against you. However, if you reach out to the IRS as soon as you know that you won't be able to pay the taxes, you may be able to get them added to your existing payment plan. To do so, you will need to file form 9465. On the proposed payment line, make sure you note a payment that covers your new and existing tax debt.

Can I make changes to my payment plan?

Yes, you can change your payment date, update your bank info, or even change your payment amount as long as the changes fit the requirements of your original installment agreement. For example, if you set up a payment plan to pay off your taxes in six years, you can increase your monthly payment, but if you reduce your payment and need more time to pay, you may need to renegoiate your plan with the IRS.

Making changes online costs $10. It costs $89 to make modifications through the mail or over the phone.

Dealing With Rejections and Terminations of Your Installment Agreement

Why does the IRS reject some payment plan requests?

The IRS may reject your payment plan request if the following apply:

Collection Information was inaccurate or incomplete
You previously defaulted on an IA
You failed to file current tax returns
Your necessary living expenses on Form 433 are unreasonable

What is the deadline to appeal an Installment Agreement rejection?

Normally you have 30 days (postmarked) from the date of your rejection to submit a new Installment Agreement request.

Will the IRS levy my property If my Installment Agreement is rejected?

If your Installment Agreement is rejected, the IRS may levy your property. You have 30 days to appeal the rejection. If you appeal, the IRS cannot levy your property or garnish your wages until the appeal is accepted or rejected.

Can I appeal an appeal?

Generally, the CAP or Collection Appeals Program is used when an installment agreement has been terminated or rejected. In fact, Form 9423, is normally used to appeal a terminated or rejected installment agreement. However, once the appeals process is over, the decision is binding. Therefore, you cannot request a judicial review of the appeal. That is why you should seek professional help during the appeals process.

When does the IRS put payment plans into default?

If you miss a payment, accumulate a new balance, or fail to file a tax return, the IRS will consider your installment agreement as in default. At this point, you can still save your payment plan. Generally, as long as you catch up on payments by the deadline in the default letter, the IRS will let you continue your agreement without termination.

Why does the IRS terminate some existing payment plans?

If your payment plan is in default and you don't take steps to cure the situation, the IRS may terminate the agreement. Here are some common reasons for termination.

You failed to file subsequent returns.
Form 433 (Collection Information Statement) was inaccurate
Your total tax liability since you began your IA has increased
You missed a payment and didn't make it after receiving a notice.

What is the deadline to appeal an Installment Agreement termination?

If your installment agreement is terminated, you have 30 days to appeal. Therefore, if you don’t appeal the termination, your agreement will end on the 46th day after the letter was sent. At that point, you have 30 days to request reinstatement. There is a $89 reinstatement fee.

Disclaimer: The content on this website is for educational purposes only and does not serve as legal or tax advice. For specific advice regarding your tax situation, contact a licensed tax professional or tax attorney.