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IRS payment plan interest and penalties

swinfield — Wed, 11 Feb 2026 03:41:12 GMT

I will file my 2023 return on time. Due to a legal settlement, I will owe over $20,000 in taxes. If I opt for a 72-month payment plan, how can I calculate what I will pay in penalties and interest?

Re: IRS payment plan interest and penalties

Vanessa A — Tue, 13 Feb 2024 02:35:12 GMT

Interest rates for the IRS change just like they do for credit cards. Current interest rates for the IRS for individuals is 8% compounded daily. There are also fees of $31 or $130 depending on how you set up your payments, direct debit or you make the payments.

Basically, once you apply for the payment plan they will send you a letter with all of your interest and penalties and fees on the plan.

Re: IRS payment plan interest and penalties

swinfield — Tue, 13 Feb 2024 03:03:59 GMT

Thanks for the response, but I'm still a bit confused. Are there generally additional penalties on top of the interest? Also, is the 8% compounded as an APR--8%/365 compounded daily? I'm just not sure I'm interpreting this correctly. I'm trying to find the most advantageous way to pay this without completely wiping out my savings.

Re: IRS payment plan interest and penalties

Vanessa A — Tue, 13 Feb 2024 03:50:28 GMT

Yes, there are generally additional penalties on top of interest. There is a failure to pay penalty that will be .5% but not to exceed 25% of your balance. So on $20,000, that is around $100 per month to start and then as your balance drops, the amount will obviously drop.

Interest compounded daily means every day the interest is added to your balance. So on day one your balance will increase by about $4.38 and then the interest would be calculated on $20,004.38 instead of $20,000. Then the next day the interest would be $4.40. The daily compounding will make a difference of about $90 per year without payments. But your interest in the first year, would be around $1,600 give or take so over 6 years you would be paying several thousand more by making payments versus making a flat out payment.

You can also put a lump sum down and then make payments over time for the remaining balance which would save you on interest in penalties. You can google a interest calculator and play with the numbers to get a good idea on what it will cost you in the long run to do a payment plan.