Tax Debt and Payment Plans: A General Overview

Owing money to the IRS is more common than most people think. A return may show a balance because of withholding that was lower than expected, a change in income, or a figure that was corrected after filing. When the amount is more than you can pay at once, the agency offers several ways to handle it over time. This guide explains the general structure of those options so you can have a more informed conversation with the IRS or with a professional.

This is general information and does not apply to every situation.

What tax debt usually includes

A tax balance is often more than the original amount due. Interest and penalties keep adding up until the balance is paid in full, so the total can keep growing while a balance is open. The total can change over time, so the number on an old notice may not be the amount you owe today.

Ask the IRS for a current balance before you choose a payment plan. Use the phone number on your notice or the online account tools on the IRS payments page to see what is owed for each tax year.

The main payment options

The most common option is an installment agreement, sometimes called a payment plan. Under this arrangement, you pay the balance in monthly amounts over a period of time. Some plans are short and some are longer. Interest and penalties usually continue during the plan, so the total cost is higher than the original balance.

You can review the general requirements on the IRS payment plans page. The page explains the types of agreements and the steps to apply. For many taxpayers, the online application is the quickest way to find out what is available. The online payment agreement application lets eligible people apply online.

Some people pay the balance in full with a credit card or loan. Card payments carry fees, and a loan means taking on a new debt. Compare the total cost of each option before you decide.

Offers in compromise and other special options

An offer in compromise allows some taxpayers to settle a tax debt for less than the full amount. The IRS reviews your income, expenses, assets, and ability to pay before deciding whether to accept an offer. The process has specific rules and requires detailed financial information. The IRS offer in compromise page describes the general requirements. Many people do not qualify. While the IRS evaluates an offer, it generally suspends other collection activities, but ask how interest and penalties are handled in the meantime.

Other situations, such as temporary financial hardship, may also be discussed with the IRS. A tax professional can tell you which options are realistic for your case.

What to know before you agree to a plan

Before you sign anything, make sure you understand the monthly payment amount, the due date each month, and what happens if you miss a payment. A missed payment can default the agreement, and the IRS may resume collection. Keep proof of each payment and check your account periodically to confirm that the payments were credited correctly.

Ask whether the plan requires you to file all past returns. Many IRS payment arrangements depend on being current with filing requirements. If a return is missing, the balance may be larger than you expect, and the agency may have estimated the tax for you.

Find out whether the plan can be changed if your income changes. Circumstances do change, and it helps to know the process for requesting a different amount before a problem develops.

Watch for companies that promise to erase tax debt

Some companies advertise that they can eliminate or reduce a tax debt for a fee. Be careful with any offer that promises a specific result, asks for an upfront fee that seems high, or asks you to send money to a personal account. Legitimate tax professionals explain what the IRS may approve and do not promise a particular outcome. If you use a representative, confirm that the person is authorized to speak with the IRS on your behalf before you share sensitive information.

When a lawyer or tax professional may help

A tax attorney, enrolled agent, or certified public accountant can review your balance, compare options, and communicate with the IRS for you. This may be useful when the amount is large, when there are several years of unfiled or unpaid tax, or when you are unsure whether an arrangement fits your situation.

If you consult a lawyer, check the license with the state bar and ask how the fee will be charged. Fees for tax work can be hourly, flat, or based on the scope of the job. Ask for the terms in writing. The tax law practice page on this site explains what tax attorneys generally handle.

Free and low-cost help

The Taxpayer Advocate Service is an independent organization within the IRS that can help when you have a tax problem you cannot resolve on your own. You can learn more on the Taxpayer Advocate Service website, which also lists Low Income Taxpayer Clinics and free tax help for qualifying taxpayers. Some nonprofit programs also help eligible people prepare returns or resolve tax issues for free or at reduced cost. Local legal aid organizations and volunteer tax clinics may be able to point you to options in your area.

Questions to ask before you choose an option

• What is the current balance, including interest and penalties?
• Which tax years does this balance cover, and are all required returns filed?
• What monthly payment would I make, and for how long?
• What happens if I miss a payment or my income changes?
• Will penalties and interest continue during the arrangement?
• Who will speak with the IRS on my behalf, and how will I be kept informed?

Frequently asked questions

Can I set up a payment plan if I owe a small amount?

Eligibility depends on the amount owed and on other conditions, such as having filed all required returns. The IRS payment plan page explains the options.

Does a payment plan stop the IRS from collecting?

While a payment plan request is pending, the IRS is generally not allowed to levy (seize property or wages), with certain exceptions. The IRS can also suspend or extend its time to collect in some situations. Ask the IRS to confirm how this applies to your case.

Is it better to pay with a credit card?

It depends on the card’s fees and interest rate, and on the total cost of each option. Compare them with the interest and penalties the IRS charges before deciding.

Will my balance go away if I wait long enough?

Tax debt has rules about how long the IRS can collect, but the period is complex and can be extended in certain situations. Do not rely on waiting. Ask a tax professional how the rules apply to your case.

Related: Browse guides on legal topics and tax lawyers by practice area.

This page is general information, not legal advice. Laws change and every case is different — talk to a licensed attorney or enrolled tax professional about your situation.