IRS Hardship Program: How can it help you?

IRS hardship program

Are you behind on your taxes, and there is no way you can pay them off? Don’t worry! The IRS has got your covered. You might think that the IRS is the last place where you would seek help during a monetary crisis. However, the IRS offers a number of tax relief programs for taxpayers who are going through extreme economic hardship. One such option is the IRS hardship program

Under the IRS hardship program, a person might qualify for the ‘Currently Not Collectible’ status. Once you get this status, the IRS cannot take your property or paycheck for fulfilling the outstanding tax debt. Learn more about the IRS hardship programs from experienced tax resolution service providers. These professional experts can also help you get a payment plan with the IRS. 

Reasons for which you can get the CNC status

There are a number of reasons for which you can get the CNC status through the IRS hardship program. The basic stipulation is that a person is qualified for the CNC status if the collection of the debt would create a financial crisis for them where they are not able to pay essential living expenses. However, you would have to prove your hardship to the IRS. For this, you will be submitting financial information using Form 433A/433F or Form 433B - the former is for self-employed or individual taxpayers while the latter is for partnerships and corporations. Through the Collection Information Statement and the supporting documents, the IRS will get the following information:

  • Everything you own, including bank accounts, real estate properties, investment portfolios, cars, motorcycles, trucks, boats, life insurance, retirement savings, etc.
  • Expense statements of the last 3 months
  • Income statements for the last 3 months
  • The market value of every asset you have
  • A three-month average of expenses and income on the basis of category

Under the IRS Hardship Program, the taxpayers also need to disclose sensitive financial information. This is why some taxpayers opt for an online payment agreement. The online payment agreements do not only have less disclosure but are also easier to qualify in comparison to the IRS Hardship Program.

Who is qualified for the IRS Hardship Program?

People who are in tax debt and have only the money for their basic living expenses and that of their family can qualify for the IRS Hardship Program. According to the information provided on the required forms, the IRS will determine if you are eligible for the program or not. 

As per the IRS Hardship Program rules, you must have:

  • Less than $84,000 annual income
  • Little to no money left after making the basic living expenses
  • Basic living expenses as per the guidelines of the IRS. The IRS has 4 categories that are considered to be allowable living expenses known as ‘collection financial standards’:
    • Food, housekeeping supplies, personal care products, clothing, and other miscellaneous items
    • Housing and utilities
    • Transportation
    • Out-of-pocket medical expenses

For analyzing these finances, you have to deduct the total allowable expenses from your monthly income. What you will get as a result will be the ‘disposable income’. This is what the IRS expects you to pay as taxes. If you have little to no disposable income, you can qualify for the IRS Hardship Program.

Another important thing that you need to know about the IRS Hardship Program is that it is only for small business owners and individual taxpayers, not for large-scale corporations. 

Rules of the IRS Hardship Program

Once you have been declared CNC under the IRS Hardship Program, no collection actions will be taken against you for collecting the tax debt. These collection actions include:

  • Tax Lien - Legal claim by the government on your property, including personal, real asset, and financial assets.
  • Tax Levy - Selling away your property for settling the outstanding debt. 
  • Garnished wages - Collecting a portion of your income until the debt is settled off.

All the rules of the IRS Hardship Program are applicable for 10 years which is also the duration the federal agency has for collecting back taxes. After 10 years, the statute of limitations is enforced. Every two years after declaring the CNC status, the IRS will be reviewing your information. They do this to check if you still are eligible for the IRS Hardship program. If they find that you are financially capable of paying your tax debt, they will revoke the IRS Hardship program and remove your CNC status. 

When you are in the IRS Hardship Program, the government won’t be seizing your property, wiping your account, or taking away your paycheck. But, this doesn’t mean that you are off the hook. The CNC status just stops the collection actions. The interests and penalties will still accrue on your debt. Here are some of the penalties you will be facing for not paying your taxes and late filing.

Penalties you will be facing for not paying your taxes and late filing

Failure to File

If you don’t file your returns by 15th April, the return due date or the extended date you receive after filing for an extension, you will be charged 5% of the unpaid tax every month for up to 5 months.

Failure to Pay

Not paying the taxes by the due date or the extended date can result in a penalty of 5% of the unpaid tax. In case of an approved installment period, you will be charged 0.25% of the debt. If you pay within 10 days after receiving the Notice of Intent to Levy, a penalty of 1% of the tax debt will be charged. For every month you don't pay the taxes, there will be a recurrent charge until the penalty reaches 25% of the debt or you pay off the debt.

Even if your account is currently under the IRS Hardship program, it doesn’t mean that your status won’t roll over automatically. The IRS considers your eligibility for the program separately. If possible, you should pay the new taxes immediately. It won’t have any effect on your CNC status from the past years. 

However, if you are not able to pay the new taxes also, you can request CNC status under the IRS Hardship Program for that year as well. With each year, it will become increasingly difficult to get that status. Also, the IRS will penalize you, and in the end, you might be forced to pay the debt using alternative payment methods like Installment Agreement or Offer in Compromise. If you are eligible for the IRS Hardship program, it is best that you hire professional experts. They will be advocating on your behalf and help you get the best tax relief option available.