If you’ve recently lost your job, but the IRS is still contacting you about unpaid tax liability, you may want to contact a compassionate Louisiana tax resolution professional for advice. A tax consultant can introduce you to tax relief programs that can temporarily stop collections, help you find an affordable payment plan, or even settle your tax debt.
Getting Tax Relief After Job Loss or Loss of Income: Top Tax Relief Programs
Whether you owe a little or a lot to the IRS, it’s best to contact a Louisiana tax resolution expert as soon as your income situation changes. Sudden income changes from termination, work injury, or disability can significantly impact your ability to pay off your tax debt. If you want to avoid penalties like liens on your property or bank levies, you will need an expert to walk you through tax relief programs you may be eligible for. These programs include:
Currently Not Collectible
Applying for a Currently Not Collectible status may be a good option for you if you plan to get a job soon, but you need time for your financial circumstances to stabilize. When this status is applied to your account, your tax bill is deferred and all collection methods will be temporarily halted. This status can last for a year or more, so it’s a great solution if you can’t afford to pay your tax debt at the moment.
However, you must be aware that a Currently Not Collectible status only halts collection efforts. While this status is applied to your account, the IRS will still be able to add interest and late penalties to your tax debt. The IRS can also seize your tax refunds to reduce your tax bill and even file a lien against your property until your debt is paid in full.
Offer in Compromise
For taxpayers who expect to have a long-term change in income, an Offer in Compromise may be a better solution. Some individuals who are injured and no longer able to work, or who will earn a much lower income for the foreseeable future, can use this tax relief program to settle tax debt for a fraction of the tax bill.
To qualify for this program, you will have to prove to the IRS that you will be unable to pay the full amount of your tax debt (now and in the future) without experiencing financial hardship. To qualify for this program, you will need to pay a non-refundable application fee and be prepared to pay 20% of your proposed settlement offer when you submit your application.
Installment agreements are another good option that can give you breathing room if your budget is tighter than usual. Both short-term and long-term installment agreements can tailor a monthly payment plan to match your income level, so you don’t experience financial hardship while paying off your tax debt. Installment agreements can prevent aggressive collection efforts, liens, and bank levies. However, interest will still accumulate on your debt over time.
Revising Your Payment Plan
If you already have an installment agreement with the IRS, but you can’t afford to make your monthly payments because your income level has changed, you can submit an application to revise your payment plan. Modifying your installment agreement can be done online. You will need to update the IRS about your employment and income changes, submit a reduced payment amount, and wait for the IRS to approve your modification.
How Can a Louisiana Tax Resolution Professional Help You?
To help you find a tax relief program that works for your financial situation, a Louisiana tax resolution expert will spend time getting to know you and your financial circumstances.
Knowing how your tax debt started can be the key to finding a resolution strategy that will help you reduce your tax liability. By investigating your financial situation and your IRS collection efforts, your tax professional will be in the best position to negotiate on your behalf.
Tax Tips to Keep In Mind After You Lose Your Job
You might not realize it immediately, but your taxes change drastically after you lose your job or earn a reduced income. When your income changes, and you drop to a lower tax bracket, different rules will apply to your annual state and federal tax return. Keep the following tips in mind so you can have a smoother transition when your income changes.
You Will Have to Pay Taxes for Unemployment and Termination Income
Termination income and unemployment income are both taxable forms of income. For severance pay, your former employer will send you a W-2 that will account for all your termination income, including sick days. Unemployment income is also taxed, so you will need to report this income on your next return using Form 1099-G.
You May Be Eligible for Different Tax Credits
Your new tax bracket may also make you eligible for different tax credits that you may not have qualified for before because your earned income was too high. If you aren’t sure which tax credits and deductions you should take, consult with a tax professional to ensure you are taking every credit you are entitled to. When you take these credits, you can increase your tax refund. The most common tax credits include:
Earned Income Tax Credit
The Earned Income Tax Credit is a credit designed to reduce the tax contribution of low-income taxpayers. To use this credit, you must file your return as an individual or as married filing jointly. You must have a qualifying child or a qualifying dependent, such as someone who is at least 25 but not older than 65. You also must not have any income from investments totaling more than a certain amount, which is determined each tax year.
Child Tax Credit
The Child Tax Credit can reduce your tax liability significantly, particularly if you have multiple children. To use this credit, the child must be under the age of 17 (or under the age of 24 and registered as a full-time student), must live in your home, and must be claimed as a dependent on your tax return. The amount of this tax credit changes year to year based on IRS calculations.
You may qualify for the Savers Credit, which is a credit of up to $1,000 for single filers and $2,000 for married couples. To be eligible for this credit, you must be a low-income taxpayer who contributed to a retirement plan. The income limits for this credit are set each year by the IRS.
You Will Need to Learn About Self-Employment Taxes
If you picked up a side hustle after losing your job, you will also need to pay self-employment taxes. The rules for self-employment taxes can apply to anyone earning self-employment income, including freelancers and contractors. A good sign that you will need to file self-employment taxes is if you get a 1099-NEC form in the mail for your income from your side hustle.
Suddenly losing your job can disrupt your financial stability, particularly if you’re already in debt with the IRS and you can no longer make payments on your tax liability. Learn more about your tax relief options when you contact Geaux Tax Resolution, LLC.