It is generally possible for an individual to set up a payment plan with the IRS; you should file your tax return by the April 15th deadline, pay as much of your taxes as you can, and request a payment agreement. This helps to avoid the late-filing penalty and minimizes the interest and late-payment penalties.

The Online Payment Agreement (OPA) Application determines whether you qualify for a payment plan. To use the OPA, you must owe less than $25,000 in combined taxes, interest, and penalties. If you qualify, and enter some basic information about your tax situation, you can arrange either a short-term payment extension or a monthly payment plan. You can also apply to set up a payment plan by filing Form 9465 (PDF) with either your electronically filed return or your paper return. You can send Form 9465 to the address on your bill or notice from the IRS. If you owe more than $25,000 in combined taxes, interest, and penalties, you may still qualify for a payment plan. However, you may need to complete a Collection Information Statement, Form 433-F (PDF).

A monthly payment plan or installment agreement gives you more time to pay your taxes. If you file your tax return on time, the late-payment penalty is reduced by one-half for any month that the installment agreement is in effect. You still pay interest and a user fee. However, the user fee is reduced by one-half if the monthly payments are made by electronic funds withdrawal. The user fee is further reduced for eligible low- and moderate-income taxpayers.

After you apply for a payment plan, you should receive written notification from the IRS as to whether the IRS accepts the installment terms or whether you will need to modify the terms. For more information about setting up a payment plan, visit the Web site of the IRS.