What It Costs to Owe the IRS
If you don’t pay your full tax bill on time, the IRS adds interest and penalties until you do. Those charges are what a loan has to beat.
IRS Interest
The IRS underpayment interest rate for individuals is 7% per year for October through December 2026. The IRS sets this rate quarterly, and it was 6% or 7% in each quarter of 2026.
The interest is compounded daily, meaning each day’s interest is added to your balance and earns interest the next day.
The Failure-to-Pay Penalty
The failure-to-pay penalty is an extra charge on tax you don’t pay by the deadline. It’s 0.5% per month or part of a month, up to 25% of your unpaid tax. You’re charged for the full month even if you pay before it ends.
If you filed on time and have an approved payment plan, the penalty drops to 0.25% per month. It rises to 1% per month if you don’t pay within 10 days after an IRS notice of intent to levy, a formal warning before it collects.
Personal Loan vs. IRS Payment Plans
An installment agreement is a long-term IRS plan with monthly payments. APR, or annual percentage rate, is a loan’s yearly cost, including interest and certain fees.
| Option | Setup cost | Ongoing cost |
|---|---|---|
| Personal loan | Origination fee, if your lender charges one | The loan’s APR, since your IRS balance is paid off |
| Short-term IRS plan (180 days or less) | $0 | IRS interest and penalties until you pay in full |
| Long-term IRS plan (installment agreement) | $29–$178, depending on how you apply and pay | IRS interest, plus a 0.25% monthly penalty if you filed on time |
Here’s more on how IRS payment plans work.
Choosing Between a Loan and an IRS Plan
When a Personal Loan Can Make Sense
- Your loan’s APR plus fees adds up to less than IRS interest and penalties over the same period.
- You’ve received a notice of intent to levy and want to pay before the penalty rises to 1% per month.
When an IRS Plan May Be Better
If you can pay within 180 days, a short-term plan has no setup fee. You can apply online if you owe less than $100,000 in combined tax, penalties and interest.
You can apply online for a long-term plan if you owe $50,000 or less and filed all required returns. Direct debit means automatic payments from your bank account.
| How you apply and pay | Setup fee | Low-income fee |
|---|---|---|
| Online, direct debit | $29 | Waived |
| Phone, mail or in person, direct debit | $107 | Waived |
| Online, other payment method | $69 | $43, may be reimbursed |
| Phone, mail or in person, other payment method | $178 | $43, may be reimbursed |
If neither fits, learn whether tax debt relief services are legitimate before signing up.
Things to Check Before You Borrow
- Compare the loan’s APR and origination fees against the IRS charges you’d otherwise pay.
- Plan for no tax break, since personal interest like personal loan interest generally isn’t deductible.
- Make sure the monthly loan payment fits your budget.
- File your return on time even if you can’t pay, because filing taxes late can add another penalty.
If you’re weighing a credit card instead, card processing fees go entirely to the payment processor.
