If you’re facing tax debt from the IRS, you’re likely in a tough spot. You’re probably undergoing significant financial stress. You might wonder how to pay your tax bill while juggling other financial obligations, such as groceries, utilities, car payments, and your mortgage or rent.
Inflation over the past few years has made everything from gas to groceries more expensive. If inflation is outpacing your paycheck, it can be hard to cover everyday expenses, much less pay down debt. If this sounds familiar, ir might be time to consider IRS tax debt forgiveness.
Fortunately, there are payment options available for eligible taxpayers to help you get out of debt without sacrificing your current lifestyle.
The Emotional and Practical Consequences of Tax Debt
Financial stress seeps into virtually every area of life. Studies show it can affect your mental health. A study from the Sleep Foundation found that more than half of people polled (52%) lose sleep over their personal finances.
Along with affecting your sleep, debt can affect your ability to perform well at work and be present with your family and friends.
Then there’s the fear of repercussions from the IRS.
The federal agency might pursue a Notice of a Federal Tax Lien, which informs creditors that the government has a legal right to your property.
Worse, the agency can take your belongings. The IRS can seize assets including:
- Bank account funds
- Social security benefits
- Real estate (other than your primary residence)
The IRS can also levy any future federal tax refunds or state income tax refunds.
Of course, you don’t want to deal with financial stress, a potentially lower quality of life, and fear of the government rounding up your assets. But you might be able to alleviate your stress and reduce your tax debt thanks to IRS tax debt forgiveness.
What is IRS Tax Debt Forgiveness?
The IRS offer in compromise, previously called the Fresh Start Program, is an IRS tax debt forgiveness program.
An offer in compromise enables people who owe the agency money to get back on track by settling their tax debt for less than what they owe. You might qualify for an offer in compromise if you can’t pay your full tax liability or if doing so creates financial hardship.
It’s not easy to qualify for an offer in compromise. According to the IRS website, you must:
- Have filed all required tax returns.
- Made all required estimated payments.
- Have a valid extension for a current year return (if you’re applying for the current year).
Also, you can’t have an open bankruptcy proceeding.
You can check to see if you qualify with the offer in compromise pre qualifier tool on the IRS website or speak to a tax professional who can help you assess your situation.
Meeting these qualifications doesn’t guarantee the IRS will accept your offer in compromise. It only means you can proceed in the application process. The agency evaluates each taxpayer’s ability to pay, income, expenses, and asset equity.
Payment Plans With the IRS
If you don’t qualify for an IRS offer in compromise, you can look into a payment plan with the IRS. It’s easy to apply online for a short- or long-term payment plan if you meet the IRS requirements.
The agency stipulates that you can pursue a short-term payment plan where you pay back the money in 180 days or less.
If it’s not feasible to pay the full amount in six months or less, you may qualify for a long-term payment plan.
Specifically, the IRS states that you might be able to apply online for a long-term payment plan if you “owe $50,000 or less in combined tax, penalties and interest, and filed all required returns.”
You might qualify for a short-term payment plan if you “owe less than $100,000 in combined tax, penalties and interest,” according to the IRS.
If you’re looking for a payment plan for your business, the IRS has an option for that, too. You might be able to apply online for a long-term payment plan if you have “filed all required returns and owe $25,000 or less in combined tax, penalties, and interest.”
Sole proprietors and independent contractors can apply for a short- or long-term payment plan as individual taxpayers.
You might have picked up penalties and interest on top of an existing tax obligation to the IRS. These additional fees can worsen your financial situation. You may qualify for penalty relief if you underpaid your estimated tax amount or didn’t meet the deadline for filing your tax return. The IRS offers three types of penalty relief for taxpayers.
You may be eligible for penalty relief if you “tried to comply with tax laws but were unable due to circumstances beyond your control,” according to the IRS website.
You’ll have to contact the IRS and make your case for why you think it should get rid of any penalties you’re facing. The agency will make the final call.
The sooner you contact the IRS, the better. Failure to pay penalties can lead to a heavier financial burden. You can continue to accrue up to 25% of the amount you owe in unpaid taxes.
How Professional Tax Advice Can Help You
Navigating the world of IRS tax debt forgiveness can be tricky. You can monitor IRS statements and announcements, but attempting to sift through the agency’s various rules and requirements is a time-consuming and often confusing ordeal.
Along the way, if you unintentionally skip over or misunderstand instructions or a line of tax code, it can harm your chances of reaching a resolution with the IRS. Seek professional tax advice to help you navigate the process more efficiently and increase your chances of a successful outcome.
As you research different tax debt relief services, double-check their business standing and credentials. Additionally, look into their track record for successfully helping people in your situation find a resolution with the IRS. Pick a reputable, experienced team that you feel comfortable with.
Alleviate Tax connects you with experts well-versed in IRS operations. Our team includes tax attorneys, CPAs, and enrolled agents. They can help you identify the best approach to settle your debts with the IRS, walk you through the process, and answer any questions you have along the way.
Peace of Mind and Financial Security
Ultimately, when you successfully map out a way to pay back the IRS, you’ll be able to gain peace of mind. You won’t be stuck in limbo, wondering if the IRS will garnish your wages or seize your assets. Instead, you’ll have a clear picture of your next steps—and be on track for a brighter future.