Quick answer
If you owe the IRS and cannot pay in full, start by filing on time and checking the IRS payment plan options. Unpaid tax accrues interest plus a failure-to-pay penalty of 0.5% a month, capped at 25%. A personal loan can make sense if its APR is lower than the plan's total cost or you need to resolve the balance quickly.
Owing the IRS is stressful, but the IRS is often a more flexible creditor than people expect. Before you borrow to pay a tax bill, look at what the IRS itself offers and compare the full cost.
First: file on time
The IRS says there is a penalty for failing to file and a separate one for failing to pay. File by the deadline even if you cannot pay everything, and pay as much as you can.
What unpaid tax costs
- Failure-to-pay penalty: 0.5% of the unpaid tax for each month or part of a month, up to 25%.
- Interest on the unpaid balance.
- When both the failure-to-file and failure-to-pay penalties apply in the same month, the IRS reduces the filing penalty by the amount of the payment penalty.
IRS payment plans
The IRS offers payment plans (installment agreements) for people who can pay in full over a longer period. Key points from the IRS:
- You can apply online through the Online Payment Agreement tool if you qualify.
- If you qualify for a short-term payment plan, there is no user fee. Longer plans can have setup fees.
- While a request is pending, the IRS is generally prohibited from levying, with certain exceptions.
- Penalties and interest continue until the balance is paid.
When a personal loan can make sense
| Factor | IRS payment plan | Personal loan |
|---|---|---|
| Cost | Interest plus penalty, possible setup fee | APR, possible origination fee |
| Approval | Based on IRS criteria, not your credit score | Based on credit and income |
| Flexibility | Fixed plan with the IRS | Fixed loan term |
| Collection risk if you fall behind | IRS collection actions | Lender collections and credit damage |
A loan can be worth comparing when your credit gets you a low APR, or when a lien or levy is a near-term risk and you need to pay the balance quickly. With fair or poor credit, the IRS plan is often cheaper. Compare the monthly payment and total cost with the loan payment calculator.
Options to avoid
- Running the tax bill onto a high-APR credit card without a payoff plan.
- Withdrawing from retirement accounts without understanding the tax and penalties. See using a 401(k) loan to pay off debt.
- Paying a company to "settle" your tax debt before you have checked the IRS options yourself.
If a personal loan beats the IRS plan for your situation, use the form on this page to see whether partner lenders may have an offer, or call (800) 236-7761.
Examples are illustrations, not offers. Approval and terms depend on the lender, your state and your credit profile.
Frequently asked questions about personal loan to pay taxes: irs payment plan vs a loan
Is it better to use a personal loan or an IRS payment plan?
Compare the full cost. An IRS plan adds interest, the failure-to-pay penalty and possibly a setup fee. A personal loan adds interest at its APR and possibly an origination fee. Many people with fair or poor credit will find the IRS plan cheaper.
What is the IRS failure-to-pay penalty?
The IRS charges 0.5% of the unpaid tax for each month or part of a month it remains unpaid, up to 25% of the unpaid tax, plus interest.
Do I have to pay a fee for an IRS payment plan?
It depends on the plan. The IRS says that if you qualify for a short-term payment plan, you will not be liable for a user fee. Longer plans can have setup fees.
Should I file even if I cannot pay?
Yes. The IRS notes there is a separate penalty for failing to file, so file on time even if you cannot pay the balance in full.
Sources
- IRS: Payment plans; installment agreements (accessed 2026-10-09)
- IRS: Failure to pay penalty (accessed 2026-10-09)
- IRS: Online payment agreement application (accessed 2026-10-09)
Last updated 2026-10-09. How we research and update pages.