Background

The IRS Fresh Start Initiative (announced in 2011) expanded access to installment agreements and adjusted thresholds so more taxpayers could set manageable payment plans instead of facing immediate collection actions (IRS Fresh Start Initiative). The program is still the primary pathway for many taxpayers to resolve unpaid tax liabilities without litigation or more severe enforcement.

How the options work

  • Streamlined (online) installment agreements: Taxpayers who owe no more than $50,000 in combined tax, penalties, and interest (and who have filed all required returns) can generally apply online for a standard monthly plan. Online approval is faster and often available through the IRS Online Payment Agreement tool (IRS: Installment Agreement).
  • Direct-debit installment agreements: Setting up automatic withdrawals lowers the chance of missed payments and can reduce setup fees. Direct debit is recommended for stability (IRS: Direct Debit Installment Agreements).
  • Partial-payment/offer alternatives: When a taxpayer cannot pay the full balance within collection limits, the IRS may consider a partial-payment installment agreement or other options such as an Offer in Compromise. These require more documentation and negotiation.

Typical terms and limits

  • Thresholds and term length: Streamlined online setups are commonly available for balances up to $50,000 and can be structured to pay within 72 months or by the expiration of the collection statute (generally 10 years from assessment), whichever comes first (IRS: Installment Agreement).
  • Interest and penalties: Interest and most penalties continue to accrue while an installment agreement is in effect. Staying current with both tax filings and payments is essential to avoid default.

Who is eligible

  • Taxpayers (individuals or businesses) who have filed all required returns.
  • Those who owe an amount that fits IRS thresholds for online or streamlined agreements, or who can document inability to pay in full.
  • Taxpayers under active collection may still be eligible but could need additional paperwork or a different agreement type.

Real-world examples (illustrative)

  • Example A: A taxpayer owing $35,000 set up a 60‑month direct-debit agreement. The plan reduced immediate cash-flow pressure and lowered default risk through automated payments.
  • Example B: A small business owed $120,000; a standard installment agreement was not sufficient. After financial disclosure, the company negotiated a partial-payment plan and avoided immediate liens while addressing the debt over time.

Steps to apply

  1. File any outstanding tax returns before applying.
  2. Use the IRS Online Payment Agreement tool for streamlined cases (balances typically $50,000 or less). Link: https://www.irs.gov/payments/installment-agreement (IRS).
  3. Choose direct debit when possible to reduce missed‑payment risk and fees.
  4. If online options aren’t available, contact the IRS by phone or submit the required forms and financial information.

Practical pros and cons

Pros:

  • Keeps you in compliance while preserving cash for living or business needs.
  • Often faster and less costly than enforced collection (liens, levies).
  • Direct debit reduces the chance of default.

Cons:

  • Interest and penalties generally continue until the full balance is paid.
  • Defaulting on the plan can trigger liens, levies, and additional costs.
  • Higher balances or complex finances may require more documentation or a different resolution (e.g., Offer in Compromise).

Common mistakes to avoid

  • Applying before filing required returns.
  • Choosing non-automated payments without a reliable calendar—missed payments can default the agreement.
  • Assuming all penalties will stop—interest and some penalties usually continue.

Frequently asked questions

  • Can I change my installment agreement? Yes. You can request a modification if your financial situation changes, but you must contact the IRS and provide updated information.
  • What happens if I miss a payment? The IRS may default your agreement and pursue collection actions, including restoring levies or filing liens.
  • Are setup fees fixed? The IRS charges user fees for installment agreements; fees and reductions (for direct debit or low-income taxpayers) change, so check current IRS guidance.

Professional tip

In my work advising taxpayers and editing tax resources, I’ve found that setting up direct-debit plans and documenting communications with the IRS prevent most problems. If your debt is borderline or your cash flow is seasonal, consider agreeing to a shorter term when cash is available and renegotiating later rather than stretching payments to the statute limit.

When an installment agreement may not be best

If you have little ability to pay or a substantially large balance, alternatives such as a Partial-Payment Installment Agreement or an Offer in Compromise may be more appropriate. See our guidance on when an Offer in Compromise might be better: When an Offer in Compromise Might Be Better Than an Installment Agreement.

Related FinHelp resources

Disclaimer

This article is educational only and does not replace personalized tax advice. Rules change and individual situations differ—consult a qualified tax professional or the IRS before making decisions.

Sources

(Information verified against IRS guidance as of 2025.)