Do You Qualify for Tax Debt Relief? 6 Biggest Factors

December 15, 2020

This year has been extremely challenging for several reasons, and if you’ve lost your job or had your hours cut due to the pandemic, you may be worried about how you’re going to pay your tax debt. Fortunately, the U.S. government has implemented several tax debt relief initiatives that may be able to assist you. However, there are some factors that go into determining whether or not you qualify for help.

Do You Qualify for Tax Debt Relief? Six Biggest Factors

The six biggest factors that the Internal Revenue Service will take into account when considering your application for tax relief are as follows:

  • The amount you owe (must usually be under $50,000)
  • Tax return filing status (must be current on all tax returns)
  • Ability to repay the debt
  • The time it would take you to repay the debt
  • The percentage drop in income (for self-employed individuals)
  • The amount of equity you have in your assets

Criteria for Tax Relief Initiatives

Main Criteria

While each relief initiative through the U.S. government has different criteria, there are some factors that the Internal Revenue Service (IRS) requires before considering your individual tax situation. First, you must have a tax debt of $50,000 or less and must be current on your tax filings. Second, if you file your taxes individually, you cannot earn more than $100,000 per year in income. For married couples, the two of you cannot earn more than $200,000 per year in income.

If you are a self-employed individual, a financial hardship is considered to be a net drop of at least 25% in income. Given the uncertainty in reliable income for many self-employed people during 2020, the 25% drop in income is not only possible, but likely. Therefore, if you still owe 2019 taxes, you may be able to get some relief based on the financial difficulties the pandemic has created, but you should get a tax consultation to be sure.

Criteria for an Installment Agreement

An installment agreement is a type of tax relief that allows you to make affordable monthly payments over time until your debt is fully repaid. Most taxpayers will qualify for this type of arrangement, and if your debt is less than $10,000, you can file IRS form 9465 with your tax return to get this agreement approved. If you owe more than $10,000, but less than $50,000, you will have to use the IRS website to request an installment agreement.

The maximum repayment term for an installment agreement with the IRS is six years, but of course, the sooner you can pay off your debt, the better, since late fees and penalties will still apply to your account. Additionally, if you are able to repay your debt within four months, you should not file for an installment agreement, but instead use the online payment system on the IRS website and pay what you can toward your debt until it’s cleared.

Criteria for an Offer In Compromise

An offer in compromise (OIC) is a tax relief initiative that allows a taxpayer to settle their debt for less than what they owe. However, an OIC is difficult to get. This is because, typically, taxpayers have equity in assets that could be used to pay the tax debt if they were liquidated. For instance, if you owe the IRS $15,000, but have a 401(k) account with a $20,000 balance, the IRS considers you able to pay your entire debt.

Besides showing a lack of ability to repay the debt in full, to qualify for an OIC, you must also be current with your tax filings and up-to-date with the estimated tax you owe for the current year. You’ll be required to pay a $205 application fee at the time you apply for an OIC, and a 20% down payment toward the offer presented. Additionally, you’ll need to make monthly payments to the IRS while the OIC is being considered.

Criteria for Currently Not Collectible Status

If you’re unable to pay your living expenses and your tax debt because your income has dropped, you may be able to qualify for the IRS’ currently not collectible (CNC) status. This is a way to delay paying your taxes until your income rebounds. You’ll likely have to prove your financial situation is dire by completing a Collection Information Statement, and it’s important to understand that this is a temporary measure. Your finances may be reviewed annually by the IRS.

Criteria for a Partial Payment Installment Agreement

In the event that you do not have enough monthly disposable income for a full installment agreement, you don’t qualify for an OIC, and you have little or no equity in assets that can be liquidated to pay your tax debt, you might be eligible for a partial payment installment agreement (PPIA). To qualify for this initiative, you must owe more than $10,000 in back taxes, penalties, and interest, not be in bankruptcy, and be current on all tax returns.

Additionally, you must not be able to pay the debt in full by the time the statute of collections runs out (10 years). You must have no equity in assets or the equity you do have is not enough to cover the debt, is not sufficient to obtain a loan, is not available because your non-liable spouse won’t sell, or selling the assets would establish a hardship.

How to Get Help

Get a Consultation

The first step toward getting help with your tax debt is to understand your options and learn which tax debt relief programs you qualify for. While this guide provides an overview of the available initiatives, it is still recommended that you take advantage of a consultation with a tax resolution specialist who can examine your tax information, tax debt, and financial situation and provide you with the best path forward for your circumstances.

Allow a Tax Resolution Specialist to Investigate

Once you have your consultation with a tax resolution specialist, you can let them do what they do best, which is to create a tax relief plan for your individual needs, ensure your assets are protected, and communicate with the IRS on your behalf.  Once you aren’t doing all the heavy lifting yourself, you will feel a great sense of relief. This will become even more pronounced once you learn what your relief options are.

Allow a Tax Resolution Specialist to Negotiate

After you’ve accepted a personalized tax relief plan that you feel comfortable with, the specialist will contact the IRS and begin working toward a resolution to your tax debt. One of the best reasons to hire a tax resolution specialist is that they will work hard on your behalf to find a solution that benefits you more than it does the IRS. This can be difficult to do on your own, especially since you’re emotionally invested in the process.

Allow a Tax Resolution Specialist to Finalize Your Case

When your specialist and the IRS come to an agreement that you’re satisfied with, you’ll be able to rest a little easier knowing that you have a resolution to your tax debt that will allow you to get out from under the shadow of the IRS.

If you’ve received a letter from the IRS, know that you don’t have to handle this scary situation on your own. Contact Geaux Tax Resolution immediately to schedule a consultation so we can start working on your case to help you regain your financial peace of mind.