What it does
The agreement gives additional time to pay and sets a monthly amount and due date. It does not reduce the tax debt by itself. Interest and applicable penalties continue until the balance is paid, and a setup fee normally applies unless an exemption or reduction is available.
How it differs from a short-term payment plan
The IRS uses “payment plan” as the broader term. An individual short-term plan allows an eligible balance to be paid within 180 days and has no setup fee. A long-term plan is the installment agreement and uses monthly payments. Online eligibility and fees depend on the balance, filing compliance, payment method, and current IRS rules.
Simple Payment Plan
A Simple Payment Plan is an IRS long-term arrangement available to many individuals with $50,000 or less in assessed tax, penalties, and interest who are current with filing and payment requirements. It does not require a collection information statement or lien determination, and the proposed payments generally must resolve the balance by the collection deadline.
Direct Debit Installment Agreement
A Direct Debit Installment Agreement, often abbreviated DDIA, authorizes automatic monthly withdrawals from a bank account. The online setup fee is lower than for non-direct-debit monthly payments. For a taxpayer whom the IRS identifies as low income, the DDIA setup fee is waived under the current rules.
Related but different options
- Partial-payment installment agreement: a reviewed arrangement when the proposed payments will not fully pay the debt before the collection deadline.
- Currently not collectible status: a temporary collection delay based on inability to pay; it is not a monthly agreement and the debt remains.
- Offer in compromise: a separate application to settle eligible tax debt for less than the full amount; approval is not guaranteed.
Example
An individual has filed all required returns but cannot pay a $12,000 federal balance immediately. The IRS online application offers monthly terms. After reviewing the amount, fee, due date, and direct-debit authorization, the person accepts the agreement and continues filing and paying current taxes while making every scheduled installment.