Short answer: file your return on time even if you cannot pay, then pay what you can and ask the IRS for a payment plan (IRS). A short-term plan of up to 180 days has no setup fee; a long-term plan has a setup fee unless you qualify as low income (IRS). Either way interest and penalties keep adding up until the balance is paid. On the example below, an IRS plan set up online costs about the same as a personal loan at the average rate, and much less than a card. This is general information, not tax advice.
The IRS options
| Option | Who can apply online | Setup fee |
|---|---|---|
| Pay in full now | Anyone | $0 (card payments carry a processor fee) |
| Short-term plan, 180 days or less | Individuals owing less than $100,000 in tax, penalties and interest | $0 |
| Long-term plan, automatic payments from your checking account | Individuals owing $50,000 or less who filed all required returns | $29.00 online, $107.00 by phone, mail or in person; waived for low income |
| Long-term plan, other payment methods | Same | $69 online, $178 by phone, mail or in person; $43 for low income, which may be reimbursed |
Source for the table: IRS payment plans. Low income here means adjusted gross income at or below 250% of the federal poverty level; changing an existing plan can carry its own fee (IRS).
What keeps adding up while you pay
- Failure to pay penalty: 0.5% of the unpaid tax for each month or part of a month, up to 25%. If you filed on time as an individual and have an approved payment plan, it drops to 0.25% a month during the plan (IRS).
- Interest: the underpayment rate for individuals is 7% a year for October to December 2026, set each quarter and compounded daily (IRS).
- Filing late costs more. The failure to file penalty is larger: the IRS example shows 5% for a month, reduced by the failure to pay penalty for that month (IRS). That is why filing on time matters even when you cannot pay.
- If you ignore an IRS notice of intent to levy for 10 days, the failure to pay penalty rises to 1% a month (IRS).
One $3,000 tax bill, four ways
Example only, our simplified calculation, not an IRS figure: $3,000.00 of tax owed on a return filed on time, a long-term plan in place from the due date, paid over 12 months. The plan rows use the 0.25% monthly penalty on the unpaid tax (IRS) and 7% interest compounded daily on what is owed (IRS), held at 7% for the whole year, counted monthly and rounded to the cent, with each payment applied to the tax first. That adds $115.66 of interest and $46.44 of penalty, plus the setup fee. Your IRS notice and online account show your real figures. Loan and card rates are the Federal Reserve's August 2026 averages for 24-month personal loans (11.90%) and commercial bank credit card accounts that paid interest (22.36%) (Federal Reserve G.19); your rate depends on your credit and the lender.
| Option | Payments | Total paid | Added to the tax |
|---|---|---|---|
| IRS long-term plan, automatic payments, set up online ($29.00 fee) | 11 payments of $263.94, then $258.76 | $3,191.10 | $191.10 |
| Same plan, set up by phone or mail ($107.00 fee) | 11 payments of $263.94, then $258.76 | $3,269.10 | $269.10 |
| Personal loan at 11.90% APR, no origination fee | 12 payments of $266.41 | $3,196.92 | $196.92 |
| Credit card at 22.36%, paid in 12 equal payments | 12 payments of $281.30 | $3,375.60 | $375.60 |
Loan payment: P x r / (1 - (1 + r)-n), r = APR / 12, rounded to the cent.
- The plan and the loan land close together here. A loan with an origination fee, or a higher rate than the average, costs more than the plan; a plan set up by phone or mail costs more than one set up online.
- If you paid the IRS by card and then carried that balance, the card row is the cost, before the card processor fee.
- If you can clear the bill within 180 days, a short-term plan has no setup fee, and paying sooner cuts both interest and penalty. Check any loan's APR and total of payments first (how to read a loan disclosure), and use the origination fee calculator if it has a fee.
Before you choose
- Not paying when due can lead to a Notice of Federal Tax Lien or a levy. While a payment plan request is pending, the IRS is generally barred from levying (IRS).
- Once a plan is in place, make every payment. A missed payment can lead the IRS to propose ending the plan (IRS).
- Whether interest on a loan used to pay taxes is deductible is covered in is personal loan interest tax deductible. If you are waiting on a refund instead, see tax refund advance vs personal loan.
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Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.