IRS Installment Agreement: Payment Plans Explained
The short-term and long-term payment plans, who can apply online, what the IRS asks of businesses, and how to keep the agreement in good standing.
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
An IRS installment agreement lets you pay a tax balance over time instead of all at once. Individuals who owe up to $50,000 in combined tax, penalties, and interest can usually set one up online without financial disclosure. Penalties and interest keep accruing, but for individuals who filed on time the late-payment penalty is halved during the agreement.
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What types of payment plans are there?
| Plan | Who qualifies | Term | Financial statement required? |
|---|---|---|---|
| Short-term payment plan | Individuals owing under $100,000 | Up to 180 days | No |
| Long-term Simple Payment Plan | Individuals owing $50,000 or less | Monthly payments that clear the balance by the collection deadline (generally up to 10 years) | No |
| Simple Payment Plan for businesses | Businesses owing $25,000 or less with payroll (trust fund) taxes, or $50,000 or less without them | By the collection deadline; apply by phone or in person, not online | No |
| Non-streamlined agreement | Larger balances | Negotiated | Yes — Form 433-A, 433-F, or 433-H (individuals), 433-B (businesses) |
Thresholds are based on the assessed balance, including penalties and interest. Paying a balance down below a threshold before applying can move you into a simpler plan.
What does a payment plan cost?
There is no fee for a short-term plan. Long-term plans carry an IRS setup fee — $29 online with direct debit, $69 online without it, and $107 or $178 by phone, mail, or in person — and for low-income taxpayers the fee is waived with direct debit or reduced to $43, which may be reimbursed. Interest continues at the federal short-term rate plus three percentage points, compounded daily. The failure-to-pay penalty drops from 0.5 percent to 0.25 percent per month while an agreement is in effect, for individuals who filed the return on time.
What must a business do?
A business with employees must be current on payroll deposits and Form 941 filings before the IRS will grant an agreement. Businesses cannot apply online; they call the IRS or visit a Taxpayer Assistance Center. A Simple Payment Plan skips the financial statement and the trust fund recovery penalty determination, but for larger balances the IRS reviews the business's income, expenses, and assets on Form 433-B and looks at who is responsible for unpaid trust fund taxes — withheld employee taxes. Owners who decide which bills get paid can be personally assessed the trust fund recovery penalty for unpaid withholding.
How do you keep an agreement in good standing?
- File every future return on time.
- Pay future taxes in full — including estimated taxes and payroll deposits.
- Make every scheduled payment; direct debit reduces the risk of a missed one.
- Expect refunds to be applied to the balance until it is paid.
Missing a payment or accruing a new balance can put the agreement in default, after which the IRS can resume enforced collection after notice.
Does the IRS file a lien?
The IRS may file a Notice of Federal Tax Lien to protect its claim, particularly on larger balances. A Simple Payment Plan does not require a lien determination, although the IRS can still file one when it decides that is needed, and a filed notice may be withdrawn if you owe $25,000 or less, pay under a direct debit agreement that clears the balance within 60 months (or before the collection deadline, if sooner), and have made three consecutive direct debit payments. A filed lien may limit your ability to get credit and to sell property with clear title.
Frequently asked questions
Can I get a payment plan if I have not filed all my returns?
No. All required returns must be filed before the IRS will approve an installment agreement.
Can I pay off the plan early?
Yes. You can pay more than the scheduled amount or the full balance at any time, which reduces interest.
Can I change my payment amount?
Yes. Online accounts let you revise many plans; otherwise, call or write to the IRS. A reduced payment may require updated financial information.
Is an offer in compromise better?
Only if you cannot realistically pay the full balance within the collection period. If you can pay over time, the IRS expects an installment agreement instead.
Official sources
The IRS explains: “Long-term payment plan (installment agreement): You owe $50,000 or less in combined tax, penalties and interest, and filed all required returns.” — Internal Revenue Service, Payment plans; installment agreements, https://www.irs.gov/payments/payment-plans-installment-agreements
The IRS explains: “Business accounts are unable to apply online for a payment plan. You may contact the phone number on your notice or call 800-829-4933 to set up a payment plan.” — Internal Revenue Service, Online payment agreement application, https://www.irs.gov/payments/online-payment-agreement-application
Next step
Fairlight Accounting handles U.S. domestic, cross-border (U.S.–Canada), and international tax returns, plus bookkeeping, payroll, and CFO advisory. Our U.S. Tax Desk files missing returns, requests penalty relief, and sets up payment plans that fit cash flow. See pricing or book a free fit call.
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