If you’re concerned about tax debts, you’re not alone. Many Americans fall behind with their taxes every year and may struggle to get back on their feet. The IRS collects over $5 trillion annually, and yet American taxpayers collectively owe billions in outstanding assessments. But what should you do if your current finances make it impossible to pay back what you owe? While the situation may feel hopeless, the good news is that there are relief options.
Chances are, you’ve heard the term “IRS hardship program”. It pops up on adverts and in online searches, and may lead you to believe that there’s one fix-all solution to tax debt. There isn’t. However, the IRS has a selection of viable relief options for taxpayers who are in genuine economic hardship. The truth is that most taxpayers just don’t know where to start.
Understanding the available options and whether you may qualify for them is the first step towards beating your tax debt. Read on to learn which relief program may suit your needs.
Key Takeaways
- There is no official “IRS hardship program,” but there are tax relief options if you’re facing hardship.
- The most common route is the Currently Not Collectible status, which pauses any tax collection action against you.
- However, you will still face interest and penalties during this time.
- Alternative tax relief options include the Offer in Compromise (OIC) or a Partial Payment Installment Agreement (PPIA).
- If you’re considering one of these options, contact a tax professional for the best chance of approval.
What is the IRS Hardship Program?
If you’re behind with your taxes, you may have been taken in by the attractive promise of an IRS hardship program. However, there is no official IRS program with this name. Tax relief companies use this phrasing a lot in their advertisements, and it can be somewhat misleading.
Claims like these aren’t completely false. They are usually referring to the idea that the IRS will pause tax debt collections if you can’t afford to pay. There’s some truth to that, especially if you are able to claim the Currently Not Collectible (CNC) status. But the relief options don’t start and end there.
As we’ll discuss in this guide, there are plenty of legitimate IRS programs tailored to people who are in financial hardship.
Does the IRS Have a Hardship Program?
Not exactly. At least, not by that name. If you’ve seen “IRS hardship program” in adverts and you’re searching, there’s a simple reason for that. When people search for what they need online, they use plain English, not IRS terminology. If they search for IRS hardship, they find a page – often a lot like this one. They don’t necessarily get to an IRS page about tax relief options.
This isn’t the only phrase that big tax relief firms use in their marketing – you’ll also hear phrases like tax forgiveness or one-time forgiveness. There’s some truth to both of these phrases – the IRS will forgive taxes for some qualifying taxpayers. But neither of these phrases points to real IRS programs.
The IRS does have a selection of hardship programs and relief options. But they go by different names. If you’re facing mounting tax debt, exploring the options and seeing which apply to your circumstances is a savvy move.
The takeaway: Don’t believe the hype of online adverts promising tax debt miracles. But understand that there are many legitimate relief options you can look into. If you’re not sure where to start, working with a tax expert can save you time, energy, and headaches.
You deserve to work with a tax professional who doesn’t hide behind fancy marketing phrases and who can help you customize a relief plan that meets your needs. At Damien’s Law, we’re committed to finding personalized solutions for our clients.
Filing for IRS Hardship Relief: the Currently Not Collectible Status Route
Often enough, when you see the phrase “IRS hardship program,” people are talking about the Currently Not Collectible status. If you genuinely can’t afford to pay your tax bill, you may be able to ask the IRS to mark your case with this status. That means they will temporarily pause any collection action against you, giving you the chance to sort out your finances.
Certain IRS Collection letters, such as the CP504 notice or LT11 notice, can prompt people to look for hardship relief. These notices go beyond simply requesting your unpaid taxes. They set out legal timelines, and can often lead to further action like wage garnishment or asset seizure. When you get one of these letters, don’t bury your head in the sand. Now is the time to look into tax debt relief programs.
Steps to apply for this status:
- Step 1: Most of the time, the first step is to fill out the 433-F form to share details of your financial information with the IRS. In some cases, you may need to file Form 433-A instead, and businesses may need to file Form 433-B.
- Step 2: Gather all of the proof of your financial hardship. That includes documents on your income (bank statements, investments, cryptocurrency, etc.), any bills you’re facing, credit card debt details, and employment information.
- Step 3: Submit your forms to the IRS. You can do this on the phone, via the mail, or with the help of a tax professional.
When you’ve submitted everything, there’s a review process. While the IRS makes a decision, they also put a temporary pause on collecting your debt. During this time, you may still accrue interest on your outstanding fees, but it does provide some relief.
Do You Qualify for IRS Hardship?
Before you propose the Currently Not Collectible status, you need to know whether you qualify for this status. People face financial hardship for a wide array of reasons. If you’re in the following categories, you may qualify for this type of tax debt relief:
- You’re living on Social Security or unemployment, and have no other form of income
- You have long-standing medical issues or a disability that prevents you from earning
- You have a low income, or you’ve lost your job
- You currently have more expenses than your income can cover
In some cases, for example, if your only income is Social Security, you may be able to get approved for Currently not Collectible status without filing an 433-F – that’s why it’s critical to talk with a tax attorney before you apply.
The above list is not expensive, and the IRS looks at your “ability to pay,” not your overall tax balance. When doing this, the officials stick to the Collection Financial Standards.
What Are Collection Financial Standards?
The Collection Financial Standards is what the IRS uses to decide what you can reasonably pay towards your outstanding tax debt, while still having basic living expenses covered. The standardized guidelines (aka allowable expenses) outline what the IRS believes people in your area should be spending on housing, utilities, food, and other essentials.
When making decisions, the IRS uses the following formula: Your monthly income minus any allowable standard expenses. That gives them the available payment capacity for unpaid taxes.
What Happens If You’re Approved for IRS Hardship
If you’re approved for the Currently Not Collectible status, you can expect a few things to happen. Here’s a rundown of how the IRS treats these cases:
- Pause on collection actions: The IRS will temporarily stop any collection actions. That includes things like levies and wage garnishments.
- Interest continues: However, you will still be subject to growing Interest and penalties on your outstanding tax debt, meaning it may increase.
- No refunds: The IRS will still keep future tax refunds until the situation changes, and you begin paying back the tax debt that you owe. All refunds will be applied to your tax debt.
- Periodic review: This type of hardship status is not always permanent. You should expect that the IRS may review this at any given time. They’ll either ask for a periodic update or monitor your tax returns for signs of increased income.
Alternative IRS Programs for Taxpayers in Hardship
But what if you don’t qualify for the Currently Not Collectible status? There are other IRS hardship programs that you can consider. Here’s a breakdown of the two main options:
Offer in Compromise (OIC)
An Offer in Compromise (OIC) allows you to settle tax debts for less than the total amount that you owe. While amounts do vary, you will typically need to offer to settle between 10% and 20% of your tax debt when proposing an OIC. If you are accepted, this will wipe your total tax debt.
There are two payment options here. You can propose a lump sum offer, or go for a periodic payment offer over up to 24 months. Unlike the Currently Not Collectible status, this option can also prevent debt from growing through interest and penalties.
Partial Payment Installment Agreement (PPIA)
A Partial Payment Installment Agreement (PPIA) allows you to make lower monthly tax payments. Unlike standard installment agreements with the IRS that eventually pay off the entire debt, PPIAs are made for taxpayers who cannot afford full payment even over an extended period. You make payments until the tax debt expires, and then, the IRS waives the remaining amount due.
If you are considering this route, contact a tax professional who can support you in doing so.
When to Get Professional Help
If you’re worried about your tax debt, it may be time to get some professional help from a tax expert. You may have received a levy or garnishment notice, for example. While many people try to ignore these letters, doing so can land you in further trouble. The sooner you take action, the better results you can expect.
A tax professional can represent you in these cases and communicate directly with the IRS. Overwhelmed by IRS debt? Talk to a tax relief expert today – contact us at Damien’s Law to set up a consultation.
FAQs
How do I file for hardship with the IRS?
To file for the Currently Not Collectible status, you will usually submit the 433-F form to the IRS. However, there are times when you’ll need to use different forms. A trusted tax professional can help you determine the next steps.
Can I stop IRS collections if I can’t afford to pay?
If you genuinely can’t afford to pay your taxes, there are tax hardship programs available. The most common is the Currently Not Collectible status. However, you may also consider an Offer in Compromise (OIC) or a Partial Payment Installment Agreement (PPIA).
What is the Currently Not Collectible status?
The Currently Not Collectible status means you can’t afford to pay your taxes. The IRS temporarily stops tax collection action if you are approved for this status. However, you need to provide evidence of your financial hardship. Working with a tax expert is the best option.
Will the IRS take my refund if I’m in hardship status?
When you have been approved for a Currently Not Collectible status, you are not entitled to tax refunds. This continues until your financial situation improves and you begin paying taxes again.
