If you’re facing tax debt, there’s no need to be ashamed. Ever-changing tax laws, coupled with inflation, have left more Americans with tax debt than ever before. In 2022, Americans owed more than $316 billion in overdue taxes, according to the Wall Street Journal. That’s up from $308 billion in 2019.
If you are one of the 18.6 million-plus taxpayers with unpaid tax debt, understand that you can resolve this problem. You’ll need to face your fears and contact the IRS or call tax debt experts like Alleviate Tax to provide you with the tax debt relief you deserve.
Once you recognize and accept that solutions exist, there are many ways to tackle back taxes, penalties, fees, and unpaid tax debt. If paying back taxes would cause financial hardship, the IRS has programs in place to break your tax liability into manageable monthly payments or even forgive your tax debt altogether.
Installment Agreement (Long Term Payment Plan)
As strict as the agency is, the IRS understands that it’s not always possible for people to pay their tax debt in full when it’s due. The IRS seeks to get as much money from you as it can, as quickly as it can.
That’s why the IRS offers an installment agreement option. An installment agreement, as you might expect, breaks your tax debt into more affordable monthly payments.
An installment agreement plan typically lasts up to 72 months for tax debt, including interest and penalties, of less than $50,000. Some agreements may extend to 84 months. If you owe more than $25,000 but less than $50,000, the IRS will require you to make payments on an installment agreement through direct debit from a bank account.
Keep in mind that interest will continue to accrue with an installment agreement, but the rate will be 0.25% instead of 0.5%. You should continue filing your tax returns on time, even as you make payments on your existing agreement.
You can apply for a regular installment agreement to pay your tax debt in full over time online at the IRS website. The application fees can range from $31 up to $225. If you work with Alleviate Tax, we include these fees in our initial price quote to you for our tax relief services.
Partial Pay Installment Agreement
If the amount you can pay monthly toward your tax bill will not see your debt paid off within 10 years, which is the statute of limitations on collections, or the Collection Statute Expiration Date (CSED), the IRS might forgive the balance of the tax debt. This is called a Partial Pay Installment Agreement, or PPIA.
However, to apply for a PPIA, you will need to contact the IRS by phone or by mail. Due to long wait times and a complicated application process, you might want to get expert help when filing for a PPIA. Additionally, any tax refunds you might be owed in the future will go toward paying down your installment plan.
Through our connections at the agency and years of industry experience, we can help expedite the process of filing for a PPIA and help make sure you aren’t forced to pay more than you can afford. Any remaining debt left at the end of 10 years will be forgiven, giving you a fresh start on your financial future.
Offer-in-Compromise, Formerly IRS Fresh Start Program
The IRS introduced its Fresh Start program to help taxpayers with unpaid tax debt. Since the Department of Education named its recent student loan debt relief program “Fresh Start,” the IRS now refers to Fresh Start as Offer in Compromise, the original name of the program.
By any name, the offer in compromise program offers taxpayers a way out when paying their tax debt in full, even on a payment plan, would cause undue financial hardship.
It’s not easy to qualify for an offer in compromise. Only 30.7% of OICs have been accepted in recent years. If the taxpayer’s assets and income are less than the total tax debt, the IRS may consider the OIC. But it’s not easy to prove this ratio.
The IRS is likely to accept an OIC if the offer is equal to or greater than what the IRS expects it might collect through traditional collection methods, which could include tax levies, tax liens, and even wage garnishment. You’ll need to show supporting documentation. The IRS will closely review your financial situation and assess your ability to pay your income tax.
If payment in full would lead to economic hardship, the IRS may accept an offer in compromise.
To prove that a taxpayer qualifies, however, the IRS will calculate the taxpayer’s reasonable collection potential. This includes the taxpayer’s assets, including real estate, vehicles, bank accounts, and other assets. The IRS does allow for basic living expenses when determining how much you can afford to pay of your tax bill.
Paying your tax debt in full could mean a substantial drop in your standard of living. You might have to make sacrifices you aren’t prepared to make, including tightening your belt for a substantial length of time until the tax debt is paid off.
That’s why it’s important to seek expert help when filing your offer-in-compromise. At Alleviate Tax, we’ve settled more than $37.2 million in tax debt through successful offer-in-compromise proposals. Some clients can see as much as 98% of their original tax debt resolved through a successful offer-in-compromise.
Currently Not Collectible
For taxpayers who don’t have the means to offer the IRS a partial pay installment agreement or an offer-in-compromise, either to be paid in full as a lump sum or through an installment agreement, filing for “currently not collectible” status provides another option.
If you qualify for CNC, it means that paying any portion of your tax debt would create financial hardship. You might just be making ends meet through your salary, business, or gig work. You have no assets that the IRS could levy. Wage garnishment would not leave you enough funds to pay your basic living expenses.
If you’re facing tax debt along with other mounting bills and high-interest debt, putting your account into non-collectable status could give you time to get back on your feet.
You should only look at this as a last resort option. Even after your account is deemed non collectable, penalties and interest continue to add up.
It’s a good idea to make sure you are current on your tax filings, that way you won’t also be charged “failure to file” penalties.
The IRS fines taxpayers 5% of the unpaid taxes for each month or part of a month that you haven’t filed your returns. The penalty cannot exceed 25% of the total unpaid tax bill.
Filing as currently not collectible does offer a significant benefit to taxpayers who don’t have the funds to pay their bill: Once you’ve been deemed CNC for 10 years, or any portion of those 10 years, and you remain in CNC status after 10 years, your debt expires. You have reached the statute-of-limitations for tax debt, and the IRS can no longer try to collect what they owe.
For many people, waiting 10 years in CNC status is the only solution to mounting tax debt.
Penalty Abatement
If you’re prepared to pay your tax bill in full, but have waited until it was past due, you might qualify for penalty abatement. Under this program, the IRS forgives any penalties, interest charges and late fees, up to the full amount.
Penalty abatement can also be part of an installment agreement or an offer-in-compromise.
Alleviate Tax can help you file the appropriate paperwork to qualify for forgiveness of your tax penalties for the first year that you’ve incurred penalties for failure to file, failure to pay, or failure to deposit. Keep in mind that only the first year’s penalties will be forgiven.
Alleviate Tax can help you navigate this complicated process, which can result in thousands of dollars or more in tax savings.
With one phone call and 15 minutes of your time, you can be steps closer to freedom from tax debt.
PPA
Find out the most frequently asked questions about IRS hardship programs for tax relief.
Who qualifies for IRS financial hardship?
If payment in full would lead to economic hardship, the IRS may accept an offer in compromise. The IRS is likely to accept an offer in compromise if the offer is equal to or greater than what the IRS expects it might collect in other ways. Taxpayers who cannot afford to pay any portion of their tax debt may qualify for currently not collectible status.
How do I get my IRS tax debt forgiven?
You may qualify for one of the IRS financial hardship programs if you cannot pay your tax debt, either fully or partially, after meeting your other expenses, including food, clothing, housing, transportation and other miscellaneous necessities.
What is the IRS one time forgiveness?
The IRS will forgive interest, penalties, and late fees as a one-time courtesy if you pay your tax bill late and apply for penalty abatement.
