Understandably, many people are apprehensive when dealing with the IRS, and worry about owing them. After all, the IRS does have some powerful collection tools. But the good news is, just as you can make payment arrangements with other creditors, you can set up an IRS payment plan

In fact, while interest and penalties will still accrue on your tax debt, an IRS payment plan may be a good solution that enables you to make smaller, more manageable payments to the IRS.

The process for setting up an IRS payment plan varies according to how much money you owe, and the amount of time you need to pay off your tax debt.

If you need a short amount of time to pay your taxes after they are due on April 15, you can go on-line to the IRS's website and file for a 120-day extension. While interest and penalties will still accrue, it may be less expensive than setting up an installment agreement or another form of an IRS payment plan.

If you don't think you can pay within 120 days, you can set up a more formalized plan to pay off the IRS.

For example, if you owe the IRS $25,000 or less, and can pay within 60 months, you can head to the IRS's website and locate the On-line Payment Agreement section and set up an IRS Payment Plan. Keep in mind that in addition to interest and fees, you will have to pay a set-up fee of $52, if you pay electronically or $105 if you pay by check or money order. Be aware that if you miss a payment one month, you will be charged a $45 reinstatement fee. While you can choose the amount of your monthly payment, be careful when you budget. Like any other bill, you want to pay as much as you can to keep interest and late fees to a minimum, but you don't want to over-extend yourself by making payment arrangements you cannot keep.

If you owe $25,000 or more, or you need more than 60 months to pay your tax, the process to set up an IRS Payment Plan becomes even more formal. In this case, complete form 433-F, "Collection Information Statement," which will determine your total assets and your monthly expenses. You will also need to include detailed records, including pay stubs and bank statements to support your claims. From there, the IRS will review the worksheet and calculate the amount of your monthly payment.

As you can see, there are many variables in setting up an IRS payment plan, and you can be forgiven if you are a little confused by which payment plan works best for you. You may want to consider talking to a tax professional who can further explain your payment options to the IRS.