Key Insights
- An installment agreement stops IRS levies and garnishments while the agreement is in effect.
- Under the Fresh Start Program, streamlined agreements are available up to $50,000 with no financial disclosure.
- Interest and the failure-to-pay penalty continue to accrue, but at reduced rates.
- Defaulting on an installment agreement re-activates IRS enforcement immediately.
What Is an IRS Installment Agreement?
An installment agreement (also called an IRS payment plan) is a formal arrangement with the IRS that allows you to pay your tax debt in monthly installments rather than in a lump sum. Once the IRS approves your agreement, they are required to suspend most collection actions — including levies and wage garnishments.
While penalties and interest continue to accrue on the remaining balance, the failure-to-pay penalty drops from 0.5% per month to 0.25% per month once an installment agreement is in place — a significant savings over time.
Types of Installment Agreements
Guaranteed Installment Agreement
Available if you owe $10,000 or less in combined tax, penalties, and interest. The IRS must grant this if you meet basic conditions (filed all returns, paid on time in prior 5 years, agree to pay within 3 years).
Streamlined Installment Agreement
For balances up to $50,000 (expanded under the Fresh Start Program). No financial disclosure required. You have up to 72 months to pay. This is the most common type for individuals.
Short-Term Payment Plan
Pay your balance in full within 180 days. No setup fee, but penalties and interest continue to accrue. Best if you expect to have funds soon.
Non-Streamlined / Regular Installment Agreement
For balances above $50,000. Requires completion of a Collection Information Statement (Form 433-A). The IRS negotiates a payment amount based on your income and expenses.
Partial Pay Installment Agreement (PPIA)
Pay less than the full balance in monthly installments based on what you can afford. The remaining balance after the Collection Statute Expiration Date is legally forgiven.
Pros and Cons
Advantages
- ✓Stops levies, garnishments, and most enforcement
- ✓Predictable monthly payments you can budget for
- ✓Reduces failure-to-pay penalty rate by 50%
- ✓No need to pay in full upfront
- ✓Protects you from passport revocation (if in compliance)
Considerations
- !Interest and penalties continue to accrue
- !You pay the full balance (unless PPIA)
- !Setup fees apply for longer-term agreements
- !Defaulting reactivates enforcement immediately
- !A federal tax lien may still be filed for larger balances