Latest Facts and News
- The IRS has collected $1.3 billion from high-wealth tax dodgers since last fall.
- New IRS initiatives target high-income individuals who have failed to pay recognized tax debt.
- The IRS processed over 168 million individual tax returns in 2023.
When unexpected challenges like job loss or rising bills hit, it can make managing your finances feel nearly impossible.
No matter the situation, taxes still need to be paid, and their deadlines and rules don’t stop. The IRS Hardship Tax Debt Relief programs are here to help during difficult times, offering a chance to catch your breath when the load of unpaid taxes seems heavy.
In this blog post, we’ll explain what is hardship tax relief and how you can access the relief that best fits your situation. Keep reading to learn about the support available and how to manage these challenges with the right IRS assistance.
Understanding Hardship Tax Relief
The IRS offers a hardship relief program to help individuals facing severe financial difficulties who are unable to pay their taxes. It provides temporary relief by postponing tax payments for those who genuinely cannot afford to meet their obligations without sacrificing basic living expenses.
Now that you have a clear understanding of hardship tax relief, it’s important to note that this assistance is not permanent. It offers short-term relief, allowing taxpayers time to regain financial stability before resuming payments.
Qualifying for Hardship Tax Relief
To qualify for hardship tax relief, the IRS requires proof that paying your tax debt would prevent you from meeting your basic living needs. It’s not enough to know what is hardship tax relief; you must meet specific financial criteria.
Financial Criteria
The IRS has specific rules to figure out if paying your tax debt would leave you struggling. Let’s get to know them:
- Income Thresholds: Your income must be too low to cover both your tax debt and basic living expenses. The IRS uses national and local Collection Financial Standards to define reasonable amounts for necessities like housing, food, and transportation. If your income falls short of these benchmarks, you may be eligible for hardship relief.
- Disposable Income Calculations: Disposable income is calculated by subtracting necessary living expenses from your total income. If little to no money remains after covering these essential costs, you may qualify for CNC status. This calculation helps the IRS determine whether you genuinely lack the ability to pay your tax debt.
- Allowable Expenses: These are essential costs for basic living or earning an income, including housing, utilities, food, transportation, and healthcare. The IRS uses standardized limits to ensure fairness in evaluations, which may not always match your actual spending.
Documentation Requirements
To prove your eligibility for hardship relief, you’ll need to submit several documents:
- Collection Information Statement: Forms like 433-A (for individuals), 433-B (for businesses), or 433-F (a simplified version for individuals and businesses), detailing income, expenses, assets, and liabilities.
- Proof of Income: Pay stubs, W-2s, or other income records.
- Expense Records: Bills for housing, utilities, medical expenses, and other allowable costs.
- Asset Documentation: Proof of equity in properties or ownership of valuable items.
- Tax Filing Compliance: Copies of filed tax returns for required years.
Having these documents prepared and organized helps the IRS clearly understand your financial situation.
Types of Hardship Tax Relief Options
The IRS offers several ways to help people deal with tax debt when they’re struggling financially. Understanding each relief option is equally important as knowing what is hardship tax relief. Here’s a simple breakdown of the main options:
- Currently Not Collectible (CNC) Status
As far as the IRS is concerned, when an individual cannot make payments because the tax debt leaves them without resources to meet the minimum subsistence needs, they can place the taxpayer’s account on hold. It follows that such taxpayers need not pay now, as they can continue for the moment without being compelled to pay.
- Installment Agreement
Taxpayers can pay the owed taxes over time in smaller installments instead of paying everything at once. A payment plan for a tax installment refers to allowing individuals who are unable to pay the full amount of the tax debt at a time to pay small installments of it.
- Offer in Compromise (OIC)
Sometimes the IRS may allow you to pay tax only partially and not the whole amount. OIC is a good option if taxpayers can prove that they are unable to pay the full amount.
- Innocent Spouse Relief
If the spouse or ex-spouse caused tax issues like failing to report income, the respective person who is innocent might not have to take responsibility for their actions. The innocent spouse relief protects them from the other person’s mistakes.
- Penalty Abatement
If the taxpayers have any penalties or charges for late payments or filing, they may have the option to reduce or even remove them. Penalty abatement helps if they have a very good reason why they couldn’t pay or file on time.
Each of these IRS collection alternatives is there to help people in different situations, so you can find one that works best for your financial needs.
Final Thoughts!
Getting relief can really help if you’re struggling with tax debt. It gives you some breathing room to sort things out without the IRS coming after you right away.
But to keep this relief, there are a few things you’ll need to know. The IRS will check your financial situation now and then, so it’s important to know what is hardship tax relief and also to take the respective considerations on time for each option.
The IRS may request updates from time to time; make sure that you send them what they require. And if your financial situation gets better, let the IRS know so you don’t run into any problems. In a way, this ensures that the relief program continues.
If all of this feels a bit much or confusing, you don’t have to do it alone. We at Hopkins CPA Firm can help. Whether it’s preparing the documents or understanding what’s required, we’re here to guide you and make the whole process easier for you.
FAQ's
How long does hardship tax relief last?
When you know, “What is hardship tax relief?” You should also know that it can last for as long as 10 years. But keep in mind that the IRS will check your financial situation every two years to see if you still qualify for the program. If they notice that your income has gone up and they believe you’re in a better position to start paying back your taxes, they might remove your hardship status and ask you to begin repayments.
Can I still receive tax refunds while in CNC status?
No, you won’t receive tax refunds while in CNC status. If you’re owed a refund, the IRS will automatically apply it to your outstanding tax debt instead of sending it to you. It’s very important to keep this in mind when filing your tax returns.
Will the IRS file a tax lien if I'm granted hardship relief?
Of course, the IRS will continue to file Notice of Federal Tax Lien to protect government interests in assets, despite being granted hardship relief through Currently Not Collectible (CNC) status.
This basically denotes that there is a public record of your debt towards tax and in turn, the same can strike a blow at your credit rating and ability to sell. As a result, it is important to note that while collection efforts such as levies and garnishments are stymied, tax lien filings continue.
How often does the IRS review my financial situation during hardship relief?
The IRS reviews your financial situation every two years while you’re under hardship relief. This review is done to ensure that you still qualify for the program based on your current financial condition. If they find that your income has increased or your financial situation has improved, they may decide that you no longer meet the requirements for relief.
Can self-employed individuals qualify for hardship tax relief?
Yes, self-employed individuals can qualify for hardship tax relief if they meet the requirements. They need to provide detailed records of their income and expenses to show that paying the tax debt would cause IRS financial hardship. The IRS will evaluate their overall financial situation, including business profits and personal living costs, to determine eligibility (CNC status eligibility). It’s important to keep clear documentation to strengthen their case.
