IRS tax debt can happen to anyone, no matter your age or income level. But if you’ve never had to address tax debt or back tax penalties before, you might not know how to deal with it while still paying your everyday bills and managing your family’s budget. Don’t worry, we’re going to show you a solution that can handle your tax debt and help you save at the same time.
If you’re wondering whether the IRS Fresh Start program can help you save on your tax debt, you’re in for a pleasant surprise. This initiative is designed to help taxpayers deal with back taxes and save pennies on the dollar. Find out what the IRS Fresh Start Program involves and learn whether you qualify for this money-saving initiative.
The IRS has always offered taxpayers ways to pay their back taxes. However, these options haven’t always been clear or easy for taxpayers to navigate. The Fresh Start initiative is a complete suite of options with relatively clear-cut eligibility requirements and improved strategies for saving.
The IRS launched the Fresh Start initiative as a response to the 2008 recession. At the time, many taxpayers were struggling to address current and back tax payments without going bankrupt. The agency introduced this program as a way to offer a clean slate to taxpayers who were behind on tax payments and who were at risk of adverse actions like tax liens and levies.
After its initial launch in 2009, the IRS continued to make updates to the program in 2012 so more taxpayers would be eligible to take advantage of the initiative’s benefits. Today, millions of taxpayers may qualify to participate in this program to resolve debt and avoid bankruptcy. Both individuals and businesses can benefit from the initiative.
According to the Treasury Inspector General for Tax Administration, the Fresh Start initiative has already been a tremendous help to hundreds of thousands of taxpayers. Between 2010 and 2013, the IRS issued almost 200,000 fewer tax liens. That means the number of tax liens was reduced by more than half within the first five years of the Fresh Start program’s introduction.
Although the Fresh Start initiative isn’t a program that you can apply for, it does have specific eligibility requirements that you have to meet before you can take advantage of the IRS rule changes for tax debt. To qualify for Fresh Start, you have to do the following:
If you are eligible for the Fresh Start initiative, you can get help with one of three key tax issues:
Even though the IRS Fresh Start initiative offers a more straightforward way for taxpayers to address back taxes, it isn’t always easy to navigate the program on your own. The eligibility requirements for each option can be complex, and communicating with the IRS can be frustrating. If the IRS requests additional information or financial data, it can be impossible to know whether you’re providing the right documents or making the situation worse.
In most cases, it’s best to get a tax relief company to help you with the IRS Fresh Start program. A knowledgeable tax relief company can review your situation, advise you about the best options, and walk you through the entire process. Here’s how a tax relief company can work with you:
When you’re looking for a tax relief company to help you with the Fresh Start initiative, don’t limit yourself to local firms. A tax relief company in your area might be convenient to visit in person, but proximity doesn’t necessarily equal great results.
Instead, consider working with a top-rated tax relief company that has extensive experience with the IRS Fresh Start program. Many highly rated firms can work with you remotely, handling your case while providing assistance via email, phone, or video chat. To select the best possible firm to help with your tax debt, look for a company with the following qualifications:
For most taxpayers, an Offer in Compromise is considered a last resort. However, an Offer in Compromise is also one of the most effective ways to save money, because it lets you settle your outstanding debt for less than what you owe the IRS.
Under the Fresh Start initiative, the IRS has more flexibility when determining your eligibility and evaluates your collection potential much more favorably. Before Fresh Start, the agency multiplied your monthly discretionary income by 60, or five years, when calculating how much it could collect from you. Now, the IRS multiplies your income by just 12 or 24, which means you can usually settle your IRS tax debt for much less.
In addition, the IRS made substantial changes to its definition of discretionary income under the Fresh Start initiative. Now, the agency considers essential expenses like state tax debt and student loans when calculating discretionary income.
When the IRS considers your Offer in Compromise, it reviews your ability to pay what you owe, your current income, the assets you own, and your expenses and debts. If the IRS believes that the amount you suggest via an Offer in Compromise is equal to what the agency can expect to collect over the course of the upcoming months or years, it may approve your offer.
Before you submit an Offer in Compromise, do the following:
To make an Offer in Compromise, you’ll need to submit the following, often with the help of a tax relief firm:
When you make an Offer in Compromise, you’ll also need to select a payment option. The IRS offers two choices:
After submitting an Offer in Compromise, you’ll have to wait for a response from the IRS. While you wait, you should continue to make the payments you outlined in your offer. While the IRS considers your offer, it’s important to know that the agency may file a tax lien but will pause other collection actions. If you don’t receive a response from the IRS within two years, the agency automatically accepts your Offer in Compromise automatically.
When you owe the IRS tens of thousands of dollars, you might not be able to pay it off in a lump sum. With installment payments, you can negotiate an agreement to pay smaller amounts periodically over a longer period of time, whether you owe individual or business taxes.
Like the helpful changes to the Offer in Compromise option, the Fresh Start initiative also introduced more beneficial terms for installment payments. Before Fresh Start, only taxpayers who owed $25,000 or less in tax debt could qualify for installment payments. Since the 2012 tax law change, you can owe up to $50,000 and still be eligible for this option.
Under the Fresh Start program, you can also negotiate an agreement that allows you up to six years to pay off your tax debt. This extension means you can have a much more reasonable amount of time to address your debts to the IRS. This program update also means you can submit smaller minimum payments each month, which can help you maintain a monthly budget that works for you.
Before you apply for an installment payment plan, make sure you’re eligible. You could qualify for a long-term installment agreement if you owe under $50,000 in back taxes, penalties, and accrued interest and if you’ve filed all outstanding tax returns. You could be eligible for a short-term payment plan if your back tax debt is less than $100,000.
To apply for the IRS’s installment payment plan, you need the following:
To request an installment agreement, submit IRS Form 9465 or use the online payment agreement application to apply as an individual or a business. Once you begin an installment payment plan, you have to submit the monthly payment and any penalties or interest your debt accrues until you pay off the balance. You may also need to pay a setup fee. While the IRS doesn’t charge a setup fee for short-term payment plans, you have to pay a $31 setup fee for a long-term plan with automatic withdrawals or a $149 setup fee for a long-term plan without direct debit.
If you neglect to pay taxes, the IRS has several options to collect your debt. First, the agency mails you a bill that specifies what you owe. In most cases, you will receive more than one notice that you have a balance due. If you don’t pay the balance by the due date, the IRS can file a Notice of Federal Tax Lien. This public document confirms that the IRS has claimed a right to your assets.
In the past, the IRS could place a tax lien on your assets even if you had a relatively small debt. Under the Fresh Start initiative, the IRS can file a lien notice only if you owe $10,000 or more in tax debt. That means you can avoid a tax lien if you owe the IRS $9,999 or less.
The Fresh Start program also introduced a way to avoid a federal tax lien even if you owe $10,000 or more. If you set up a streamlined payment plan with the IRS, the agency won’t file a lien. That means you can agree to an installment payment plan to pay off up to $50,000 in debt without worrying that the IRS will place a lien on your property or belongings.
If the IRS has already filed a tax lien, you can have it eliminated if you have filed all applicable tax returns for the past three years and if you have submitted all tax payments. If you don’t meet these requirements, however, you can pursue another option for having the tax lien withdrawn, thanks to the Fresh Start initiative. Under this program, you can apply to have a tax lien removed if you meet the following requirements:
In most cases, it’s worth submitting IRS Form 12277 to eliminate your tax lien. Having a tax lien from the IRS can have several negative effects, including allowing the IRS to claim all of your current and future assets acquired during the lien, limiting your ability to apply for credit, preventing you from selling your home, and remaining in place even if you end up filing for bankruptcy. Applying to withdraw your tax lien can help you avoid all of these drawbacks.
To collect tax debt, the IRS can place a tax levy on your property. Unlike a tax lien, a tax levy means that the IRS claims complete ownership over your assets to pay the balance of your debt. Since the IRS can place a tax levy on anything from your home and your car to your bank account, this is one of the most serious outcomes of having tax debt.
Some Fresh Start options, such as installment agreements, can impact the tax levy removal process. Call the IRS to get your tax levy released if one of the following situations applies to you:
You also have an opportunity to avoid a tax lien by submitting an appeal. When you receive a levy notice from the IRS, you have 30 days to make a formal appeal. Submit IRS Form 9423 to appeal the tax levy and force the IRS to reconsider its decision.
In addition to placing tax liens and tax levies on your property, the IRS can collect tax debts directly from your paycheck. Also known as wage garnishment, this process allows the IRS to collect from your paycheck without getting a judgment first, unlike other creditors.
While most creditors can garnish only limited amounts from your paycheck, the IRS follows the federal tax code when determining how much to take. Essentially, the tax code calculates the amount you need for basic living expenses, based on the number of exemptions you claim. That means the IRS can take the rest of your paycheck, leaving you with enough to cover just everyday expenses.
Fortunately, like most of its other collection options, the IRS won’t start taking money from your paycheck right away. First, you’ll receive a notice that shows what you owe and the due date. If you don’t pay the balance, you’ll receive a final notice indicating that the IRS will begin garnishing your wages. To stop IRS wage garnishment, you can take advantage of Fresh Start initiatives and other options:
Tax debt doesn’t always come from past-due taxes alone. If the IRS has penalized you for mistakes or missed deadlines, these fees can increase the total balance you owe. In some cases, penalties can accrue, causing your balance to grow continually.
As you pursue the right Fresh Start program option for you, take the time to find out if you qualify for penalty abatement. If you’re eligible, you can reduce the total amount you owe to the IRS. That means you can save money and tackle your tax debt faster.
While the IRS won’t waive all penalties, it can eliminate certain types. Eligible penalties include:
If the IRS charged you one of the eligible penalty types, you may qualify for penalty relief. The IRS offers three types of penalty relief:
In some cases, the IRS won’t grant your first penalty relief request, but that doesn’t mean you have to give up. Instead, you can make a follow-up request using the IRS’s online penalty appeal tool.
If you’re struggling to pay outstanding tax debt, the Fresh Start initiative can help you get back on your feet. Whether you qualify for Fresh Start options like an installment payment plan, a tax lien withdrawal, or an Offer in Compromise, or this program can help you deal with debt effectively while also resolving issues like stopping wage garnishment and removing tax levies. Find an experienced tax relief company and start handling your IRS tax debt today.