IRS Form 2159 “Payroll Deduction Agreement” Explained

IRS Form 2159, Payroll Deduction Agreement, sets up an installment agreement where your employer withholds a fixed amount from each paycheck and sends it directly to the IRS. It’s a voluntary payment arrangement you agree to, not the same as a wage levy, which the IRS can impose without your consent.

How It Works

1. You and the IRS agree on an installment agreement, either through IRS collection staff or by requesting payroll deduction on Form 9465.
2. The IRS sends you Form 2159 with your information and the agreed payment amount.
3. You take the form to your employer. Your employer completes and signs its section, agreeing to deduct the payment from your pay and send it to the IRS on schedule.
4. You sign it and return it to the IRS, which then approves the agreement.

Your employer isn’t required to accept a payroll deduction agreement, so talk with your payroll department first.

Why Choose Payroll Deduction

• Fewer missed payments: the payment comes out before you see your paycheck, which lowers the risk of default.
• An alternative to a levy: you choose the amount within the IRS’s guidelines, instead of having the IRS levy your wages and leave you only the exempt amount.
• Easier approval in some situations where you can’t use direct debit

Drawbacks

• Your employer learns about your tax debt.
• If you change jobs, you must notify the IRS and set up a new agreement or payment method.
• Penalties and interest continue to accrue until the balance is paid.
• Setup fees for a non-direct-debit plan generally apply: currently $178 when set up by phone, mail or in person, or $43 for qualifying low-income taxpayers, according to the IRS.

Staying in Good Standing

As with any installment agreement, you must file all future returns on time and pay future taxes in full, usually by adjusting your own withholding or making estimated payments. Missing either can cause the IRS to default the agreement. While the agreement is in effect, the IRS generally won’t levy, and the failure-to-pay penalty rate drops from 0.5% to 0.25% per month for individuals who filed on time.

Related: Form 433-D, Installment Agreement and Lien vs. Levy.

Get Help From Diehl CPA

IRS collection and appeal procedures have strict deadlines, and what you submit becomes part of the record. Diehl CPA, led by Mark Diehl, CPA, CFE, represents taxpayers before the IRS and can prepare the forms, gather the documentation, and deal with the IRS for you. Learn about our tax relief services or contact us to talk through your situation.

This article is general information, not tax or legal advice for your specific situation. Updated October 2026.