The year 2020 has been unlike any before it, especially with the COVID-19 issues that have thrown the world into chaos. For many people in the United States, paying taxes during 2020 has become a hardship because of the thousands of jobs lost and hours cut. If you are facing circumstances that have made it challenging to pay your taxes, there are five IRS tax relief programs you may qualify for that could ease your worries.
5 IRS Tax Relief Programs You May Qualify For
A payment plan is probably the easiest of the IRS tax relief programs to get because nearly everyone who owes taxes qualifies. There are two basic payment plan options through the IRS that offer relief in the form of monthly payments rather than having to come up with the entire amount all at once. The first is a short-term payment plan that is for people who owe less than $100,000 plus penalties and interest and requires payment in full within 120 days.
The second payment plan option is a long-term plan that is for people who owe less than $50,000 plus penalties and interest. This is referred to as an “installment agreement” and can extend for more than 120 days. It is important to understand that late penalties and interest will continue to accrue on both plans until your balance is paid in full. For outstanding balances of $25,000 or more, a bank account is required for automatic withdrawal.
Short-term payment plans are free to set up, but long-term payment plans will cost between $31 and $225 depending on how you set them up. For example, if you apply online and pay through automatic withdrawal, you’ll pay just $31 to set up the plan. If, however, you apply by mail, phone, or in person and pay by any method other than automatic withdrawal, you will pay $225 in setup fees.
Offers in Compromise
In some cases, you may be able to settle your back taxes for less than you owe. This is known as an offer in compromise or OIC. To qualify, you will probably have to be current on all your tax returns, which means you must have at least filed your taxes, regardless of whether or not you’ve paid what you owe. You must also pay a non-refundable $205 fee and make an initial payment while the IRS determines your eligibility.
The initial payment must be at least 20% of your total payment offer or of your first payment in the event that you will be making six or more monthly payments. The IRS will keep tax liens in place until an offer is accepted and paid in full. If you are making payments to satisfy the OIC, interest will continue to accrue on your unpaid balance.
Some people think an OIC sounds like a scam, but the IRS actually settles with taxpayers on a daily basis. The IRS would rather collect some of what is owed rather than nothing, so it is willing to work with you to reach an agreement on how much you can realistically pay. Additionally, the IRS would also rather collect what it can through an OIC than wait for you to declare bankruptcy and not be able to collect anything at all.
Of course, it’s in the IRS’s benefit to get as much money as possible, so you may want to work with a professional to negotiate on your behalf. Keeping the lines of communication open with the IRS and pushing for an OIC can be beneficial for both parties. Be sure to hire a professional that works to protect your assets while helping you find the program that’s best for you.
IRS Fresh Start Penalty Relief
One available tax relief program is a part of the 2008 IRS Fresh Start Initiative, which has undergone several changes since the financial crisis of that year but is still a great way to reduce the amount of money you owe the IRS. If you’ve lost your job in 2020, the Fresh Start Penalty Relief program could reduce the penalties you owe, as the IRS can impose penalties of up to 40% of your unpaid tax bill.
To qualify for penalty relief, self-employed individuals must have experienced a drop of 25% or more in income and cannot earn over $200,000 if filing jointly or $100,000 if filing as an individual. Additionally, you cannot owe the IRS more than $50,000 in 2020. For people who are not self-employed, they may be eligible for penalty relief if they have been unemployed for 30 days or more. You can also request a six-month extension that would be penalty-free.
Bankruptcy is always an option for anyone who owes excessive amounts of debt, including tax debt to the IRS. Both Chapter 7 and Chapter 13 bankruptcies can discharge at least some of your tax debt, but Chapter 7 allows you to discharge all of it. That being said, Chapter 7 is harder to qualify for. Chapter 13 is easier to get, but will only discharge a portion of what you owe. A payment plan is required for the balance.
Only income taxes are eligible for partial or full discharge in bankruptcy. Other types of taxes, including payroll, property, and more are not eligible under either chapter. Additionally, your tax debt cannot be less than three years old, which means if you owe taxes for 2019, you will not be able to discharge any portion of that debt until at least 2022. For more recent debt, other programs may be more beneficial.
Deferment is one of the IRS tax relief programs that might be most appropriate for people who owe taxes from 2019, especially since it is unlikely that 2021 will be as bad as 2020 in terms of COVID-19 job losses. Deferment is when you delay your IRS tax payment until you are able to afford it, either all at once or in installments. This is known as “Not Currently Collectible” debt or NCC debt.
Essentially, the IRS agrees to put your owed taxes on hold for a period of about a year to allow you to get back on your feet financially or raise enough money to pay off your debt. This is one of the harder programs to qualify for as the IRS does not like to go for long without receiving payments from people who owe them money.
However, if you can prove that there is no way for you to pay even a monthly installment toward your debt, you may qualify. You will need to provide details into your income, spending, and debt to the IRS for them to determine if a deferment is an appropriate action in your case. Remember that interest and late penalties will continue to accrue during the deferment period.
Do You Need Help?
These five programs listed here can help you deal with any tax debt you may have, but the key is to work with the IRS rather than avoid it. Avoidance only makes the problem worse and the agency is willing to work with you if you also show a willingness to meet your tax obligations.
However, as with any government agency, having a professional negotiate these programs with the IRS can be extremely helpful to get the best deal for you as possible. Contact Geaux Tax Resolution today and speak with one of our friendly consultants to find out how you can use these tax programs to your benefit. We are owned by a former IRS employee, so we know how to get the results you need.