Key Takeaways:
Manage IRS debt over time: Installment agreements let taxpayers pay monthly, pause most collection actions, and reduce failure-to-pay penalties.
Various plan options: Plans include Short-Term, Guaranteed, Direct Debit, Simple (individuals), Streamlined (businesses), Regular, and Partial Payment, each with different terms and fees.
Eligibility requirements: Must have filed all returns, comply with current obligations, and meet plan-specific thresholds.
Flexible application methods: Apply online via ID.me, by phone, in person, or by mail using Form 9465, with fees varying by method.
Interest and penalties continue: Payments reduce debt over time, but interest accrues until fully paid.
Default risks: Missed payments or unfiled returns can end the agreement, resume collections, and increase penalties; contact the IRS promptly to revise or explore alternatives.
When tax debt becomes too much to manage, an IRS installment agreement may be your best option. Taxpayers can apply for an installment agreement through multiple methods, including the IRS Online Payment Agreement tool on IRS.gov, which is generally the quickest option for those owing less than $50,000, as well as by phone, mail, or in person. Here’s an overview of how IRS installment agreements work, including eligibility criteria, application processes, types of agreements, and key considerations.
What Is an IRS Installment Agreement?
An IRS installment agreement is a payment plan that allows taxpayers to pay their federal tax debt in monthly installments over an agreed-upon period. This option provides a way to manage tax liabilities and avoid immediate aggressive collection actions from the IRS, such as levies and liens. Having a payment plan in place also reduces the failure to pay penalty to 0.25% per month, or partial month. The installment agreement can include all unpaid tax liabilities for the relevant tax years, not just those over a certain age. That said, you cannot have two installment agreements with the IRS. However, you may request a new agreement if you have defaulted on a previous one, subject to certain conditions.
While the IRS reviews an installment agreement request, most enforced collections are generally paused, though some actions (like levies already in process) may continue until the agreement is approved. IRS collections are typically ceased or prolonged while the installment agreement is pending until it can be approved or rejected. However, the IRS may keep any tax refunds you receive and apply them to your tax bill. If the installment agreement request is rejected, collections will be suspended for 30 days. Every taxpayer has the right to appeal a rejection. In this case, collections will be suspended until a decision is made on the appeal.
Eligibility Criteria
To qualify for an IRS installment agreement, taxpayers generally must have filed all required tax returns and meet additional IRS eligibility requirements based on their specific tax situation, such as:
- Have no other installment agreements in place.
- Comply with current tax payment obligations.
However, there are also other eligibility requirements based on the type of installment agreement you apply for.
What IRS Installment Agreements Are Available?
The IRS offers four types of installment agreements, each catering to different situations. Let’s review the eligibility criteria, terms, and costs for both.
Short-Term Payment Plan
The Short-Term Payment Plan is ideal for taxpayers who can pay their tax debt in 180 days or less and owe $100,000 or less in combined taxes, penalties, and interest. No financial disclosure is required, making it a quick and accessible option for many. Since the repayment period is short, interest and penalties continue to accrue until the balance is fully paid. Taxpayers can apply online through their IRS account, by phone, or by submitting Form 9465 (Installment Agreement Request), though online setup is usually faster.
Short-Term Payment Plans carry no setup fee, making them the most cost-effective option for quick repayment. Payments can be made via direct debit, IRS Direct Pay, or traditional check, giving flexibility to fit personal preferences. While this plan doesn’t extend over multiple years, it’s a convenient choice for those expecting a temporary cash influx or who want to avoid the complexity of longer-term agreements.
Guaranteed Installment Agreements
A Guaranteed Installment Agreement is available to taxpayers who owe $10,000 or less and meet specific eligibility criteria. To qualify, all required tax returns must be filed, and the debt cannot exceed the IRS threshold. If these conditions are met, the IRS must approve the plan, which typically has a term of up to 36 months. No financial disclosure is required, and the plan is designed to simplify repayment for those with smaller balances. Taxpayers can apply online, by phone, or by submitting Form 9465.
Fees for Guaranteed Installment Agreements are generally low or waived, particularly when set up through Direct Debit, which also ensures timely payments and prevents missed deadlines. Interest and penalties continue to accrue on unpaid balances, so setting the highest affordable monthly payment is recommended. This plan is particularly appealing for individuals who want a fast, straightforward path to paying off their IRS debt without complex documentation or prolonged approval processes.
Direct Debit Installment Agreement
The Direct Debit Installment Agreement (DDIA) is an IRS-preferred plan that allows taxpayers to make automatic monthly payments deducted directly from their bank account. This method can be used for debts of various amounts, with term lengths generally up to 72 months, or as limited by collection statutes. Because payments are automated, this option reduces the likelihood of missed payments, which can otherwise cause penalties or default. Taxpayers must have filed all required returns to qualify.
Setup fees for a DDIA are typically the lowest of all installment plans, and opting for online application further reduces costs. Interest and penalties continue to accrue until the debt is fully paid, but automatic payments help taxpayers stay compliant and avoid default. Applications can be completed via the IRS Online Payment Agreement tool or using Form 9465, with flexible options for scheduling monthly deductions. This plan is ideal for taxpayers who prefer convenience, reliability, and reduced fees.
Simple Payment Plans
In March 2025, the IRS replaced Streamlined Installment Agreements (SIAs) with Simple Payment Plans. These are designed for taxpayers who owe a manageable amount of tax and cannot pay it all at once. These agreements allow you to make monthly payments to the IRS until your debt is fully paid. Typically, taxpayers can set up a Simple Payment Plan online if they owe $50,000 or less in combined taxes, penalties, and interest, and have filed all required returns.
Payments are most convenient and cost-effective when set up as automatic monthly direct debits, which reduce setup fees. Alternative methods include scheduling payments online through your IRS account or making individual payments via IRS Direct Pay. Most taxpayers have up to 10 years to pay off their balance, though longer terms increase accrued interest and penalties. Businesses should continue to refer to Streamlined Installment Agreements, the equivalent plan for business tax debts.
Streamlined Installment Agreements
Streamlined Installment Agreements offer businesses an efficient way to resolve tax debt without the need for a collection information statement or a notice of federal tax lien determination. Eligibility depends on the type of business and tax owed: businesses still operating must have $25,000 or less in assessed income tax debt, out-of-business entities may qualify with any type of tax debt up to $25,000, and out-of-business sole proprietors may qualify with tax debt up to $50,000. All required tax returns must be filed, and businesses that do not meet these thresholds can explore other IRS payment plan options.
Setup fees may apply, but online applications generally have lower fees and save time and postage. Choosing Direct Debit for automatic monthly payments further reduces costs and simplifies the process. Most businesses have up to 72 months (6 years) to pay off their balance, though shorter periods are possible, and interest and penalties accrue during the payment period. Businesses with larger balances that are not using direct debit may face a public Notice of Federal Tax Lien. Payment plans can be arranged online for debts under $25,000 expected to be paid in two years, or through alternative submission methods.
Regular (Nonstreamlined) Installment Agreement
The Regular Installment Agreement is intended for taxpayers with larger debts, typically exceeding $50,000, or those who do not qualify for simpler plans. Full financial disclosure through Form 433-A or Form 433-F is required, meaning the IRS will review detailed income, expense, and asset information before approving the plan. The repayment term can extend up to 10 years, though shorter periods are allowed. Taxpayers must have filed all required returns and may apply online, by phone, or via Form 9465 with supporting documentation.
Setup fees for Regular Installment Agreements are considered standard, and interest and penalties accrue throughout the repayment period. Because approval is not automatic, the IRS may negotiate monthly payment amounts based on the taxpayer’s financial situation. This plan is best suited for those with substantial balances who need structured payments over several years. This helps provide a manageable path to resolving taxes while remaining compliant with IRS requirements.
Partial Payment Installment Agreement
A Partial Payment Installment Agreement (PPIA) is a type of IRS payment plan that allows taxpayers to settle their tax debt for less than the full amount owed. To qualify, you must demonstrate that you’re unable to pay the full tax liability, even over time. You must submit a detailed financial statement, Form 433-F or Form 433-B, to the IRS. Once you submit this form, the IRS will review the information provided. They will then negotiate the monthly payment amount based on your ability to pay. They will also review your finances every two years. If your financial circumstances change, your payment may increase, or your agreement can be terminated altogether.
Setup fees are considered standard, and interest and penalties continue to accrue on the unpaid portion of the debt. The agreement remains in effect until the tax debt is fully paid or the collection statute expires, whichever comes first. The CSED is typically 10 years from the date the tax was assessed, although certain actions can extend it. Remember to make all payments on time or you risk having your agreement voided.
Application Process
Applying for an IRS installment agreement can be done through several methods, depending on the complexity of your tax situation. The fastest and most accessible option is online via the IRS Online Payment Agreement tool, which requires:
- An ID.me account
- A valid photo ID
- Your Social Security Number (SSN) or Employer Identification Number (EIN)
- A bank account if you plan to use direct debit.
Applications can also be submitted by phone or in person at IRS Taxpayer Assistance Centers. For taxpayers who prefer traditional methods, you can submit a mail-in application using Form 9465 (Installment Agreement Request). Setup fees for Form 9465 depend on your payment method. For example, the setup fee for a direct debit agreement is lower than others. There is also a reduced fee for low-income taxpayers or those qualifying for a direct debit waiver. Note that IRS interest rates change quarterly. That said, the total amount owed may increase over time, even under an installment plan. Choosing the highest monthly payment you can comfortably afford helps minimize accrued interest and penalties.
Consequences of Default
Failing to comply with the terms of an IRS installment agreement can have serious consequences. If a taxpayer defaults, the agreement is typically terminated, and the IRS may demand the full balance immediately. Aggressive IRS collection actions that were previously paused, such as tax liens, levies, or asset seizures, can resume, placing your property and finances at risk. Additional penalties and interest continue to accrue on the unpaid balance, further increasing your total debt. Taxpayers also lose the collection protection that the installment agreement provided, leaving them fully exposed to IRS enforcement actions.
Common causes of default include missed or late payments, unfiled tax returns, new tax liabilities, or failure to update financial information required under certain plans, such as Partial Payment Installment Agreements. Contact the IRS immediately if you anticipate difficulty making payments. Then you can discuss revising your installment agreement or considering options like an Offer in Compromise.
Frequently Asked Questions About IRS Installment Agreements
How do I modify or reinstate an existing installment agreement?
You can request a modification or reinstatement by contacting the IRS directly, either online through your IRS account, by phone, or by submitting Form 9465 with updated financial information.
How does entering an agreement affect my eligibility for an Offer in Compromise?
Being in an installment agreement does not prevent you from applying for an Offer in Compromise. However, the IRS may review your current payments and financial situation when considering your application.
Can I combine multiple tax years into a single installment agreement?
Yes, the IRS allows taxpayers to include multiple tax years in a single installment agreement. This is provided all returns are filed and the total debt is eligible for the chosen plan.
Tax Help for Those Seeking an Installment Agreement
If you default on your IRS installment agreement, the IRS may terminate the agreement, making the entire remaining balance immediately due. Following termination, the IRS can resume collection efforts such as filing federal tax liens, levying wages or bank accounts, or seizing assets. That said, it is crucial to make timely payments and ensure your agreement terms are manageable for your financial situation. Optima Tax Relief has over a decade of experience helping taxpayers get back on track with their tax debt.
If You Need Tax Help, Contact Us Today for a Free Consultation