Does interest stop accruing when you have an installment agreement?

No. Interest and penalties continue to accrue on any unpaid balance throughout the duration of an installment agreement. However, the failure-to-pay penalty rate drops from 0.5% per month to 0.25% per month while a formal installment agreement is active. Paying more than the minimum monthly payment reduces both your total cost and the time to pay off the debt.

What happens if you miss a payment on an IRS installment agreement?

Missing a payment can cause your installment agreement to default. The IRS sends a CP523 notice giving you 30 days to cure the default before the agreement is terminated. If terminated, the full balance becomes due and the IRS can resume collection actions including levies and wage garnishment. Contact the IRS immediately if you know you will miss a payment — modified agreements are possible in some circumstances.

Can the IRS file a tax lien while you are on an installment agreement?

Yes. For balances over $10,000, the IRS may file a Notice of Federal Tax Lien even if you have an active installment agreement. For balances of $25,000 or less on a Direct Debit Installment Agreement with three consecutive payments made, you may qualify to have the lien withdrawn under the IRS Fresh Start program.

What is an installment agreement?