IRS Payment Plans Explained: Short-Term vs. Long-Term

You filed your return. The number at the bottom is bigger than your checking account balance. Now you’re staring at the screen wondering whether the IRS is going to come after your business.

Deep breath. This is fixable.

The IRS would rather get paid over time than not get paid at all. That’s the entire premise behind installment agreements. But the IRS offers several types, and the difference between them affects what you pay in fees, how much interest piles up, and whether a federal tax lien lands on your credit report.

I set up IRS payment plans for Houston business owners almost every week. Here’s exactly how they work.

Two Categories: Short-Term and Long-Term

The IRS draws a clear line.

Short-term plans give you up to 180 days to pay the full balance. No application fee if you set it up online. The IRS doesn’t file a federal tax lien (in most cases). Interest and penalties still accrue, but the total added cost is manageable over six months.

Long-term plans — officially called installment agreements — give you up to 72 months. Application fees range from $31 to $225. The IRS is more likely to file a tax lien. Interest and penalties accrue for the full payment period, which adds significantly to the total cost.

The question isn’t complicated: can you clear the debt within 180 days? If yes, short-term. If no, long-term. Everything else is details.

Short-Term Plans: The Cleanest Exit

If your tax debt is under $100,000 and you can pay it off within six months, the short-term plan is your best bet.

You don’t pay an application fee, you don’t have to disclose your finances, and the IRS usually doesn’t file a lien. It’s the least invasive option.

I use short-term plans for clients who have predictable cash coming in. A contractor waiting on a $30,000 payment from a completed project. A seasonal business that’s about to hit their busy quarter. A medical practice that’s collecting on outstanding insurance claims. If you know the money is arriving, a 180-day window is enough to collect it and pay the IRS.

One thing to watch: interest and the failure-to-pay penalty don’t stop. On a $50,000 debt at current rates (roughly 8% annually plus 0.5% monthly failure-to-pay penalty), six months adds approximately $4,500 to the balance. That’s real money, but it’s a fraction of what a multi-year installment agreement costs.

Long-Term Installment Agreements: Three Tiers

If 180 days isn’t enough, you’re looking at a long-term installment agreement. The IRS breaks these into tiers based on how much you owe.

Tier 1: Under $10,000 — Guaranteed Approval

The IRS calls this the “guaranteed installment agreement” and they mean it. If you owe less than $10,000 and meet three conditions, approval is automatic:

You’ve filed all required returns for the last five years
You haven’t had an installment agreement in the past five years
The IRS agrees you can’t pay in full immediately

Your monthly payment is calculated to clear the balance within 36 months. On a $9,000 debt, that’s $250/month. Simple math, fast approval, minimal hassle.

I’ve set these up for clients in under an hour. Most of the time is spent pulling IRS transcripts to confirm the exact balance.

Tier 2: $10,001 to $50,000 — Streamlined

This is where the IRS Fresh Start Initiative made the biggest difference for Houston small businesses.

If you owe between $10,001 and $50,000, you qualify for a streamlined installment agreement. The magic word is “streamlined” because it means:

The best part about the streamlined tier is everything they skip: no financial disclosure form, you apply online in minutes, and most applications clear in 24-48 hours. The catch is they require direct debit and the max term is 72 months.

Real example: a landscaping company owner in the Heights owed $38,000 in back estimated taxes from 2023 and 2024. Two bad years where the business grew faster than his accountant adjusted his estimated payments. We applied online on a Wednesday morning. Approved Thursday. Monthly payment: $528 by direct debit on the 15th of each month. His total payoff including interest and penalties will be roughly $44,000 over the full term. Not perfect, but his bank accounts aren’t frozen and his credit isn’t destroyed.

Tier 3: Over $50,000 — Full Financial Disclosure

Cross $50,000 and the IRS wants to see everything.

You’ll file Form 9465 (Installment Agreement Request) along with either Form 433-A (for individual taxpayers) or Form 433-B (for businesses). These forms ask for:

Last three months of bank statements (every account)
Proof of all income sources
Monthly expense documentation
Asset valuations — vehicles, real estate, equipment, investments, retirement accounts
Outstanding debts and liabilities

The IRS reviews this information and calculates what they think you can afford based on their standards — not yours. The IRS uses national and local expense allowances published annually. If you spend $3,500/month on your mortgage but the IRS allowable housing expense for Harris County is $2,200 for your family size, they use $2,200.

This creates a gap between your real budget and the IRS’s calculated budget. That gap is what they expect you to send them monthly.

Having someone who knows the forms matters here. There are legitimate expense categories the IRS allows but doesn’t highlight: payments on other tax debts, court-ordered obligations, certain childcare costs, mandatory business operating expenses, and health care costs above the national standard. Getting these categories documented correctly can reduce your required monthly payment by hundreds of dollars.

Setup Fees

The IRS charges different fees depending on method and payment type:

Application Method	Direct Debit	Other Payment
Online	$31	$130
Phone/Mail/In-Person	$107	$225
Low-Income (online)	$0 (may be waived)	$43 (may be reimbursed)

Direct debit saves you money on the fee and prevents missed payments. There’s no good reason not to use it.

The Federal Tax Lien Problem

Here’s the part that bites.

If you owe more than $25,000, the IRS will probably file a Notice of Federal Tax Lien. A lien is a public record that attaches to your real estate, vehicles, and business assets. It shows up on credit reports. It makes lenders nervous.

Under Fresh Start rules, the IRS won’t file a lien if you owe $25,000 or less and you’re on a direct debit installment agreement. They’ll also release a lien once your balance drops below $25,000 during a streamlined agreement.

But above $25,000? Expect it.

I’ve seen Houston business owners lose commercial lease renewals because landlords saw the tax lien. A property management company in Midtown lost a deal because the client’s lender flagged it during financing. A contractor in Cypress couldn’t bond a job because the bonding company saw the lien and walked away.

The lien doesn’t mean the IRS is seizing your property. It’s a legal claim, not a physical action. But the secondary effects on your business can be just as damaging.

If a lien is filed, you can request a lien withdrawal (Form 12277) after entering a direct debit installment agreement. The IRS doesn’t always grant it, but it’s worth asking. I’ve successfully gotten lien withdrawals for several clients who demonstrated that the lien was actively harming their ability to earn the income needed to pay the tax debt. The IRS has an incentive to remove obstacles to your ability to pay them.

What Happens When You Miss a Payment

Miss a payment and the IRS sends a CP523 notice. You have 30 days to cure the default — make the missed payment plus the current one.

Miss the 30-day window and the agreement terminates. The full remaining balance becomes due immediately. The IRS can resume collection actions: levies, garnishments, and additional lien filings.

Getting a new installment agreement after a default is harder. The IRS treats you as a higher risk. They ask for more documentation. They set tighter terms.

This is why I always recommend direct debit. The most common reason for missed payments isn’t financial distress — it’s “I forgot” or “the check got lost in the mail.” Direct debit eliminates human error entirely.

The Hidden Option: Partial Payment Installment Agreements

A partial payment installment agreement (PPIA) is for business owners who can’t afford payments large enough to pay off the full debt within the collection statute.

On a standard installment agreement, you’re expected to pay the full balance (plus interest and penalties) over 72 months or the remaining statute period. A PPIA sets payments based on what you can actually afford, even if that won’t cover the full amount.

The IRS reviews your financials every two years. If your income increases, they adjust upward. If it stays flat, the agreement continues. When the collection statute expires, whatever remains unpaid is forgiven.

I’ve used PPIAs for Houston business owners in industries with inconsistent revenue. A wedding photographer whose income drops 60% between November and February. A construction subcontractor whose cash flow depends on weather and project timing. The PPIA matches the payment to the reality of the business, not to a spreadsheet projection.

The IRS prefers you try an offer in compromise first. But if your asset equity is too high for an OIC, a PPIA is the better option.

Choosing the Right Plan

Decision tree:

If you can clear the balance in six months, short-term plan, done, no fees. Owe under ten grand? You’re auto-approved for a 36-month payoff. Between $10K and $50K is the sweet spot for streamlined agreements — apply online, direct debit, approved in a day or two, no financial disclosure required. Over $50K and you’re into non-streamlined territory where you need professional help with the 433 forms and the IRS determines your payment based on a full financial analysis. And if you can’t afford even the minimum payment, look into a PPIA or currently not collectible status.

Texas Makes This Simpler

Texas has no state income tax. When a Houston business owner falls behind on taxes, they deal with one agency: the IRS. In California or New York, you’d be negotiating two separate payment plans with two different agencies, on two different timelines, with two different sets of rules.

That single-agency reality simplifies everything. One set of forms. One negotiation. One monthly payment. One compliance obligation.

The Texas franchise tax is a separate issue for certain business entities, but it’s administered by the Texas Comptroller, not the IRS, and has its own resolution process.

How We Set Up Payment Plans

We handle IRS installment agreements for Houston businesses regularly. The process:

Pull IRS account transcripts to confirm exact balances by tax year and type
Determine which tier you fall into (under $10K, $10K-$50K, over $50K)
For non-streamlined cases, prepare the Collection Information Statement with all allowable expense categories documented
Apply for the agreement (online for streamlined, by mail for non-streamlined)
Set up direct debit and confirm the payment schedule
Monitor compliance — we check in quarterly to make sure nothing’s fallen through the cracks

If you’re staring at a tax bill you can’t pay in one shot, talk to our team about your options. Payment plans aren’t exciting, but they stop the IRS collection machine and give you a clear path forward.

Want the full picture of every IRS relief option? Read our complete guide to IRS tax debt relief for small businesses.