IRS Installment Agreement — Short-Term vs Long-Term Plans Compared
The IRS offers two main installment agreement types: short-term (up to 180 days) and long-term (up to 72 months). The right choice depends on whether you can realistically pay within six months. Short-term plans have no setup fee and lower total interest. Long-term plans have lower monthly payments but cost significantly more over time.
Compare both plans for your balance with the IRS Payment Plan Calculator.
Short-Term vs Long-Term: Quick Comparison
| Feature | Short-Term (180 days) | Long-Term (72 months) |
|---|---|---|
| Maximum balance | $100,000 | $50,000 |
| Setup fee (online) | $0 | $22 (direct debit) or $69 (other) |
| Monthly payment | Balance ÷ 6 | Balance ÷ up to 72 |
| Interest rate | ~8%/year | ~8%/year |
| FTP penalty rate | 0.5%/month | 0.25%/month (reduced) |
| Tax lien filed? | Usually no | Possible if over $25,000 |
| Financial disclosure | Not required under $100K | Not required under $50K |
| Total cost (on $15,000 debt) | ~$15,600 | ~$19,500 (6 years) |
Short-Term Plan in Detail
Who qualifies: Anyone who owes $100,000 or less (including penalties and interest) and can pay within 180 days.
How it works: You agree to pay the full balance within 180 days. There's no formal monthly payment amount — you can pay in any schedule as long as the balance is zero by day 180.
| Example: $12,000 Balance | Amount |
|---|---|
| Monthly payment (if paying evenly over 6 months) | $2,000 |
| Interest over 6 months (~4%) | $480 |
| FTP penalty (0.5%/month × 6) | $360 |
| Total cost | $12,840 |
Advantage: No setup fee, lower total interest and penalties, no tax lien.
Long-Term Plan in Detail
Who qualifies (streamlined): Anyone who owes $50,000 or less and needs more than 180 days to pay.
How it works: The IRS calculates a minimum monthly payment based on your balance divided by the remaining collection statute (typically 72 months or the time remaining on the 10-year statute of limitations).
| Example: $12,000 Balance, 60-Month Plan | Amount |
|---|---|
| Monthly payment | $200 |
| Setup fee (online, direct debit) | $22 |
| Total interest over 5 years | ~$2,900 |
| Total FTP penalties (0.25%/month × 60) | ~$1,800 |
| Total cost | $16,722 |
Compared to the short-term plan's $12,840, the long-term plan costs nearly $4,000 more for the same $12,000 debt. The difference is entirely from extended interest and penalties.
When to Choose Each Plan
| Your Situation | Best Choice |
|---|---|
| Can pay full balance within 6 months | Short-term (saves money) |
| Need more than 6 months | Long-term (lower monthly payments) |
| Balance over $50,000 | Short-term (if you can; long-term requires financial disclosure) |
| Want to avoid a tax lien | Short-term (liens rare) or long-term with direct debit |
| Low income and struggling | Long-term with reduced setup fee |
Direct Debit vs Manual Payments
For long-term plans, direct debit (automatic monthly withdrawal from your bank) has important advantages:
| Feature | Direct Debit | Manual (check/online) |
|---|---|---|
| Setup fee | $22 | $69 |
| Risk of default | Lower (automated) | Higher (easy to forget) |
| Lien avoidance | More likely | Less certain |
| Penalty reduction | 0.25%/month | 0.25%/month |
If you default on an installment agreement (miss payments), the IRS can revoke it and take enforced collection action. Direct debit eliminates the risk of accidental missed payments.
For the full overview of all IRS payment options, see IRS Payment Plan Guide. For understanding costs in detail, read IRS Payment Plan Interest and Penalties. And for setting up automatic payments, check How to Set Up IRS Direct Debit Payment.
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