What You Need to Know About Tax Relief for Deserving Americans

Jill Bridges
Expert Contributor
Last Updated:
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  • The IRS provides several forms of tax relief for deserving Americans who are struggling with tax debt.
  • Some of the most common forms of tax relief include installment plans and an offer in compromise.
  • Taxpayers who are not able to pay their taxes or their living expenses can defer collection by requesting a Currently Not Collectible status.

Dealing with tax debt brings its share of stress. When you owe money to the IRS, paying back what you owe and getting your finances back in order may seem impossible. Fortunately, with several available options for tax relief for deserving Americans, you may finally be able to get out from under tax debt and get back to enjoying your life. We’ll explore several tax relief options and discover some advice for avoiding tax debt in the first place.

Lower Your Tax Burden

Once you’re in debt, getting out of debt can be difficult, especially if you owe a large amount of money. Luckily, you can take a few steps to avoid owing money to the IRS. First, you need to make sure that you are correctly filing and paying your taxes every year. Keeping up with your tax responsibilities will keep you out of debt so that you won’t have to search for relief options. Hiring a professional tax preparer is a good idea if you want to ensure that your taxes are filed correctly.

Keeping your tax burden as low as possible is another way that you can avoid debt. A lower tax bill will be easier to pay. You can take advantage of a variety of deductions to lower your tax bill. For example, many medical expenses are deductible, and using these deductions can make paying your taxes at the end of the year easier. You may also be able to deduct travel expenses related to your medical care in certain circumstances.

If you want to lower your tax burden so that you can stay out of debt, you should consider consulting with a tax professional. The right professional will be able to help you identify available deductions that will keep your annual tax bill as low as possible.

Ask for an Installment Agreement

If you don’t think you’re going to be able to pay your annual taxes, or if you’re already in tax debt, contact the IRS and request payment on an installment agreement. These plans are one of the most common forms of tax relief for deserving Americans, and they are a solution if you’re struggling to cover your tax burden.

What You Need to Know About Tax Relief for Deserving Americans

When it comes to installment plans, “deserving” basically means that you meet certain qualifications. Not every taxpayer is eligible for an installment plan.

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Generally, an installment plan is the best option if you’re dealing with $10,000 or less of tax debt. You can apply for an IRS installment plan in one of the following three ways:

  1. Online
  2. By phone
  3. By mail

If you’re interested in getting tax relief through an installment plan, you need to understand a few things. First, you’ll need to make a minimum monthly payment to keep your plan in place. When you request your payment plan, the IRS will ask how much you can afford to pay every month. If the amount you report is too low, the IRS will divide your tax debt by 72 to determine your minimum monthly payment.

Second, you should understand that you may be charged a fee for your installment plan. You won’t be assessed fees for payment plans in which you’ll fully pay your tax debt within 120 months.

For payment plans that will last longer than 120 months, you’ll need to pay $31 if you’re setting up a direct debit agreement. Standard agreements are subject to a $107 fee.

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Finally, the type of installment agreement you request will depend on the amount of your tax debt. If you have $10,000 or less in tax debt, you should request a guaranteed installment plan. The IRS automatically approves these agreements as long as you promise that your tax debt will be paid in full within 10 years. These agreements are also beneficial because no minimum payment exists.

If you owe between $10,000 and $25,000, or between $25,000 and $50,000, you will need to make minimum monthly payments, and you will have a maximum of 72 months to cover your debts. With installment agreements for these amounts, the IRS will need to examine your finances and expenses before approving your agreement. For tax debts greater than $50,000, the IRS will inspect each area of your finances before approving an installment agreement, including the following:

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  • Assets
  • Bank accounts
  • Income
  • Investments

Before approving an installment agreement for large amounts of debt, the IRS may require that you sell off some of your assets and investments to pay a portion of your tax balance.

Get Tax Relief From an Offer in Compromise

An installment agreement is a good solution for many people seeking relief for tax debt. You should request an installment agreement only if you know you can make payments toward your tax debt every month. If your finances will prevent you from making these payments, then you’ll need to choose another tax relief option, such as an offer in compromise.

The primary benefit of an offer in compromise is that it can allow you to clear your tax debt without having to pay the full amount that you owe. Offers in compromise are available only to taxpayers who don’t have the ability to pay their tax debt. If the IRS determines that you are able to make payments in an installment agreement, an offer in compromise will not be possible. You must meet certain basic qualifications to be eligible for an offer in compromise. You must have:

  • Filed all of your previous tax returns
  • Made estimated tax payments if required
  • Made quarterly federal tax deposits if you own a business with employees

Even though you may meet these requirements, the IRS may not accept your offer in compromise. These offers will be accepted in three basic situations. First, an offer in compromise may be accepted if any doubt exists regarding whether you’re actually liable for your tax debt or some uncertainty exists about whether the amount that you owe is correct.

Second, your offer in compromise may be approved if the IRS is unsure about its ability to collect your debt, a condition known as “doubt as to collectibility.” Essentially, your income and assets are less than your tax debt. In other words, you simply don’t have the money to cover your back taxes even with an installment plan.

Lastly, effective tax administration can be grounds for an offer in compromise. In these circumstances, you actually owe your taxes and the IRS believes that it has the ability to collect the full amount, but doing so would result in an economic burden.

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When you submit your offer in compromise to the IRS, you must state how you plan to pay the settled amount if the offer is accepted. Your two payment options are a lump-sum cash offer or a periodic payment offer. With a lump-sum cash offer, you’ll need to pay your tax debt in no more than five payments and in no longer than five months. When you make this offer, you’ll need to provide 20% of the offered amount upfront.

A periodic payment offer gives you slightly more time to pay your back taxes. Periodic payment means that you’ll need to pay off your debt in six payments over a 24-month period. This option is usually the best choice for larger settlement amounts.

Ask for Currently Not Collectible Status

The goal of tax relief for deserving Americans is to help qualified taxpayers pay off their back taxes as easily as possible. Unfortunately, some taxpayers are in such a challenging financial situation that they can neither pay their taxes nor cover their normal living expenses. If you find yourself in such a situation, you can contact the IRS and request that your tax debt be given a Currently Not Collectible (CNC) status.

When you request a CNC status, you are agreeing that you owe money to the IRS but contending that your financial situation prevents you from making any payments. CNC differs from an offer in compromise. To qualify for CNC status, you must also be unable to pay for living expenses such as food and lodging.

Unlike other tax relief options, CNC status does not help you clear back taxes; it only defers payment. Basically, the IRS agrees that you cannot currently pay your taxes. The agency will refrain from attempting to collect what you owe for a year, after which your financial status will be reviewed again.

Before the IRS will grant CNC status, IRS representatives will go over your finances to make sure that you are actually unable to cover your finances and living expenses. For example, the agency will try to determine if you have any assets that could be sold to cover your tax debts. If no assets are available, the IRS will examine your monthly income to determine whether you’re able to afford an installment agreement. You’ll likely need to provide proof of your financial hardship by submitting pay stubs and receipts demonstrating your living expenses.

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If the IRS approves your request, you should be aware of a few items. First, the IRS may place limits on your monthly expenses. For example, if you currently pay $1,000 a month on transportation, the IRS may limit this expense to $500 a month. Some other points to understand about CNC status include the following:

  • Debts of $10,000 or more may be subject to a tax lien.
  • The IRS will keep future tax refunds until your debt is paid.
  • Your CNC status will be reviewed annually and may be revoked if your financial situation improves.
  • If your situation never improves, the IRS may write off your debt once the 10-year statute of limitations for tax collection expires.

Deal With Penalties

Not everyone who owes money to the IRS deals with back taxes. For example, the IRS may penalize you for a late filing or late payment. Even if you’ve paid your taxes, you may still owe these penalties. Fortunately, the IRS also provides penalty relief for deserving Americans.

If you have a clean tax history, for example, you could apply for a First-Time Penalty Abatement Waiver. With this waiver, you can clear penalties for missing filing deadlines or tax payments, or penalties for a failure to deposit if you’re a business owner with employees. You can request a waiver by phone or by mail, and you must meet the following three qualifications:

  1. You can’t have any outstanding returns, and you must have filed all of your previous returns.
  2. You have paid all of your previous taxes or have arranged an installment agreement to allow you to pay your taxes.
  3. You have not been penalized in the three previous years.

If you don’t qualify for this waiver, you still may be able to get relief from your penalties. For example, the IRS provides relief to taxpayers who can prove that the situation that resulted in the penalties was due to a reasonable cause. A reasonable cause for failing to file your tax return or make a tax payment include a natural disaster, a serious illness or death in your immediate family, or problems obtaining your financial records.

Penalty relief is also available for statutory exceptions. In these cases, you asked the IRS for advice about your taxes in writing, the advice that you received was incorrect, and following this advice caused you to incur penalties. When applying for a statutory exception, you’ll need to provide the IRS your original request for advice and the incorrect advice you were given.

Dealing with tax debt can be stressful, which is why the IRS provides tax relief for deserving Americans. If you need help finding the tax relief option that is right for you, Solvable is your top resource. In our library of articles, you’ll find information about the different types of tax relief as well as tips for avoiding tax debt. We also offer reviews of debt relief companies if you’re looking for professional advice.

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Jill Bridges
Expert Contributor
Last Updated: