Essential Guide to Self Employed Tax Relief Options Available Today

Managing taxes as an independent contractor, freelancer, or sole proprietor can be difficult without the structure or support of an employer. You are responsible for tracking allowable business expenses, meeting filing deadlines, and making estimated tax payments—often while managing unpredictable income. It’s easy to fall behind due to unexpected costs, late fees, or gaps in cash flow, which can lead to mounting tax debt and IRS penalties.

Fortunately, the IRS offers tax relief programs to help self-employed individuals reduce, delay, or manage their tax obligations. These programs may allow you to postpone due dates, pay in installments, or settle your debt for less than the full amount owed. This guide walks you through everything you need to know—what options are available, how to determine eligibility, and how to apply for relief, whether through a payment plan, offer in compromise, or penalty abatement.

You’ll also find examples of honest taxpayers who have successfully reduced or resolved their IRS debt and practical strategies to avoid future issues like underpaying Social Security or Medicare taxes or missing deadlines. You have options if you’re overwhelmed by tax bills, penalties, or interest. With the right approach, you can work with the IRS to take control of your finances and move forward confidently.

Self-Employment Tax: What Is It, and What Does the IRS Provide? Relief

For self-employed individuals, IRS tax relief refers to various official programs that help reduce or manage federal tax debt. These relief options are designed to assist people who work for themselves—independent contractors, sole proprietors, and freelancers—who face financial hardship or challenges meeting tax payment deadlines.

Individuals must independently determine and submit their estimated tax payments since self-employment income is not automatically withheld like wages from traditional jobs. Missing these payments can result in penalties, interest, and growing debt.

Self-employed taxpayers frequently seek relief for the following reasons:

Irregular business income makes it challenging to budget for quarterly tax payments.
A high self-employment tax rate (including Medicare and Social Security) increases total tax owed.
Bookkeeping issues or business losses can lead to late tax return filings.
There is restricted access to employer-sponsored benefits like health insurance and retirement contributions.

IRS Tax Relief Options Include:

Payment schedules or installment plans:
Instead of allowing taxpayers to make a single tax payment, let them make smaller, easier-to-manage monthly payments.
Compromise Offer (OIC):
If paying in whole puts a qualified taxpayer in financial hardship, it allows them to settle their debt for less than the entire amount owed.
Currently Not Collectible (CNC) Status:
Temporarily pauses IRS collection actions when taxpayers can’t afford to pay without sacrificing basic living expenses.
Penalty Relief and First-Time Abatement:
Penalty Relief and First-Time Abatement: This program provides a method to decrease or remove penalties associated with late filing, payment, or deposit of taxes.

These programs are legitimate, government-backed options—not scams—and are available to those who qualify based on income, adjusted gross income, expenses, and financial hardship.

Understanding these solutions helps self-employed taxpayers avoid aggressive IRS actions such as liens, levies, or garnishments. With the correct information and documentation, you can find a path forward—even if you owe back taxes or have an open bankruptcy proceeding.

Who Qualifies for Self-Employed Tax Relief and IRS Programs

Not every taxpayer qualifies for IRS tax relief, but many self-employed individuals may be eligible if they meet specific income, documentation, and compliance standards. The IRS considers financial hardship and filing status to decide who is eligible for different payment plans, penalty relief, or settlement programs like the Offer in Compromise.

It is essential to comprehend these requirements before completing any forms.

General Eligibility Requirements

Self-employed taxpayers must meet the following criteria to be eligible for most IRS tax relief programs:

Have a verifiable tax debt.
You must owe the IRS an unpaid self-employment tax, income tax, or other taxes, such as Medicare or state taxes withheld.
Be current on all required tax filings.
You must have filed all required tax returns, even if you can’t pay the full amount owed. Missing returns will disqualify your application.
Demonstrate financial hardship or inability to pay.
The IRS will assess your adjusted gross income, allowable business expenses, and self-employment income to determine if paying your full balance would create hardship.
You must not be in an open bankruptcy proceeding.
Generally speaking, taxpayers with open bankruptcy proceedings are not eligible for most relief programs and must address those issues first.
Submit accurate and complete financial documentation.
Depending on the program, you might be required to submit Form 433-A, Form 9465, or other financial disclosure documents to confirm your eligibility.

Documentation that is frequently needed consists of:

Evidence of both business and gross income.
The documents include both prior-year and current tax returns.
The documents include recent bank statements and profit and loss statements.
The documents also include a breakdown of monthly expenses and debts.
Health insurance records, deductions from home offices, and deductible business use expenses are also included.

Who Typically Qualifies?

Independent contractors and freelancers who have experienced a drop in earnings qualify for assistance.
Those sole proprietors who have fallen behind on their estimated tax payments also qualify.
Self-employed taxpayers dealing with medical bills, natural disasters, or unexpected business losses also qualify for assistance.
Taxpayers who earn below the median income for their tax year and have limited assets are also considered.

Qualifying for tax relief depends on more than how much you owe. The IRS will examine your complete financial picture—including your expenses, fees, wages, and the circumstances surrounding your tax debt—to decide whether you are eligible for a program.

IRS Payment Plans for Self-Employment Tax Relief

If you cannot pay your full tax debt immediately, the IRS offers payment plans, also known as installment agreements, that allow you to repay what you owe over time. These plans are ideal for self-employed individuals with steady business income who need more flexibility to manage monthly tax payments without risking enforcement actions like liens or levies.

There are two primary types of payment plans: short-term and long-term, each with specific thresholds and application procedures.

Short-Term Payment Plan

A short-term plan lets you fully pay your tax debt within 180 days. It does not require a formal agreement and avoids setup fees, although penalties and interest continue to accrue.

You may qualify if:

You owe less than $100,000 in taxes, penalties, and interest.
You may pay the entire amount within the specified short-term window.

Long-Term Installment Agreement.

If you require more than 180 days, a long-term installment agreement enables you to make monthly payments over several months or years, depending on your balance and financial circumstances.

You may qualify if:

You owe $50,000 or less in total tax debt.
All required tax returns have been filed.
You can afford a regular monthly payment plan based on income and expenses.

How to Apply for an IRS Payment Plan

There are three ways to apply:

Online via your Individual Online Account
- The fastest option for the majority of self-employed taxpayers.
- Immediate approval is possible for qualifying applicants.
- Ideal for setting up direct debit from a bank account.
By mail using IRS Form 9465
- Required if you do not qualify for online setup.
- Include Form 433-F if your balance exceeds limits or financial disclosure is needed.
By phone at 800-829-1040
- Speak with an IRS representative to discuss eligibility, setup, and required documentation.

Payment and Fee Options

Fees vary depending on how you apply and how you decide to pay.

Payments by direct debit online: $31 setup fee.
Non-direct debit online payments: $149 setup fee.
Mail or phone applications: Up to $225 setup fee.
Taxpayers with low incomes may be eligible for fee reductions or waivers.

Monthly payments can be made by:

You receive a direct debit from a financial institution.
Payroll deduction through your employer.
Online card payments (with third-party fees).
Mail a check or money order to the IRS.

Staying Compliant During Your Plan

Once enrolled, you must:

Make timely monthly payments.
File all future tax returns on time.
Maintain your estimated tax payments if you are a sole proprietor or independent contractor.

Failure to follow these terms may result in default and renewed collection activity.

Offer in Compromise: Settle Self-Employment Tax for Less

An Offer in Compromise (OIC) allows eligible taxpayers to settle their tax debt with the IRS for less than the full amount owed. It’s a powerful solution for self-employed individuals who cannot afford to pay their total balance without risking basic living expenses or business operations.

The IRS only accepts offers if it concludes that the amount it can reasonably collect is the highest given your income, assets, expenses, and financial situation.

Who Qualifies for an OIC?

You must meet the following requirements to be eligible for an Offer in Compromise:

You have filed all required tax returns and are current with estimated tax payments.
You are not in an open bankruptcy proceeding.
Your adjusted gross income, self-employment income, and asset values show an inability to pay the full amount.
Your financial information supports the idea that complete debt collection is unlikely or would cause economic hardship.

Types of Offers in Compromise

Doubt as to Collectibility
You cannot afford to pay the full tax debt based on your income, assets, and overall financial situation.

Effective Tax Administration
You technically can pay, but doing so would cause excessive hardship or unfair outcomes, especially for elderly, disabled, or low-income self-employed taxpayers.

Doubt as to Liability
You believe you do not owe the full amount or that the IRS incorrectly assessed the tax return.

Required Forms and Documentation

To submit a complete Offer in Compromise application, you must include the following documents:

Form 656: Offer in Compromise Agreement.
Form 433-A (OIC): Collection Information Statement for self-employed taxpayers.
There is an application fee of $205, unless you can demonstrate your low-income status.
The first payment amount will depend on the offer you choose and the payment plan you choose.

Documents commonly required include:

Proof of business costs and income.
The documentation should include recent bank statements, tax returns, and profit/loss statements.
Details about property, vehicles, and other assets.
Breakdown of self-employment tax, health insurance costs, and deductible expenses.

Payment Options

Lump Sum Cash Offer
If the IRS accepts your offer, you pay 20% of the amount with the application and the rest in five or fewer monthly payments.

Periodic Payment Offer
You begin making monthly payments while the IRS reviews your offer. If accepted, you continue paying until the full amount is satisfied.

Low-Income Certification

If your gross income falls below IRS thresholds based on family size and state, you may:

Waive the $205 application fee.
Avoid submitting the initial payment.
You will still be required to submit financial documentation and completed forms.

To determine your eligibility, refer to the IRS Form 656 Booklet and complete the Low-Income Certification Worksheet.

Important Considerations

Submitting an OIC will pause collection activities but not eliminate penalties or interest until the offer is accepted and paid in full.
You can appeal or submit a revised offer if yours is rejected.
Staying compliant with future tax payments and filings is required to maintain OIC approval.

Currently Not Collectible: Temporary Relief for Self-Employed Individuals

When Business Income Isn’t Enough to Cover Living Expenses

CNC status is ideal for independent contractors or sole proprietors with declining business income or unexpected expenses. It provides temporary relief, but the tax debt remains and can be reactivated if your financial condition improves. Maintaining proper records—such as home office deductions, health insurance costs, and business use of assets—is essential during IRS reviews.

If paying your tax debt would prevent you from covering basic living expenses, you may qualify for Currently Not Collectible (CNC) status. This IRS designation temporarily suspends collection activities when taxpayers, particularly self-employed individuals, demonstrate they cannot pay.

Being placed in CNC status does not erase your debt, but it can provide essential breathing room to stabilize your income and financial situation.

Who Qualifies for CNC Status?

The IRS considers CNC status for taxpayers who can prove they cannot afford to pay without causing financial hardship. Eligibility is based on:

One rule is that your gross income must be no more than what you need to live on.
The eligibility criteria also include the inability to make monthly payments under an installment agreement.
Self-employed people who pay taxes must show proof of all the money they make, spend, and owe from their business.
The self-employed taxpayer should not be involved in an open bankruptcy proceeding.

Required Documentation

To apply for CNC status, self-employed taxpayers must submit detailed financial information, including:

You must provide proof of income from all sources, including business income.
You must also provide recent tax returns to verify your compliance with filing requirements.
A financial hardship statement detailing your inability to pay.
A completed Collection Information Statement (Form 433-A or 433-F).
Bank statements, profit/loss reports, and expense breakdowns.

What Happens After CNC Approval?

Once approved for CNC status:

The IRS is temporarily stopping collection actions like levies and garnishments.
Penalties and interest continue to accrue on your outstanding balance.
The IRS will periodically review your case to determine if your financial situation has improved.
You must remain current on all tax return filings and estimated tax payments.

Considerations for Self-Employed Taxpayers

CNC status is ideal for independent contractors or sole proprietors with declining business income or unexpected expenses.
It provides temporary relief, but the tax debt remains and can be reactivated if your financial condition improves.
Proper records—such as home office deductions, health insurance costs, and business use of assets—are essential during IRS reviews.

IRS Penalty Relief Programs for Self-Employment and Medicare Taxes

The IRS often adds penalties to the tax debt of self-employed people who are late on their tax payments or miss filing deadlines. Several penalty relief programs can help you lower or eliminate these fees if you qualify.

The first step to lowering costs and getting back into compliance is knowing your options.

Types of IRS Penalty Relief

First-Time Penalty Abatement
This one-time waiver is available if you have a clean compliance history. You may qualify if:

You have filed all required tax returns or valid extensions.
You have paid or arranged to pay your current tax debt.
You had no prior penalties for the three preceding tax years.

Reasonable Cause Relief
The IRS may waive penalties if you can demonstrate circumstances beyond your control, such as

A serious illness, death, or natural disaster is beyond your control.
Not getting the proper documents could also be a valid excuse.
Financial problems are a big worry, especially for independent contractors or sole proprietors whose business income isn't always steady.

Statutory exception
Specific penalties may be automatically waived due to IRS errors or special legal provisions.

How to Apply for Penalty Relief

You can request penalty relief in a variety of ways, depending on your situation:

By phone, using the number listed on your IRS notice.
You may also submit your request in writing by completing Form 843, the Claim for Refund and Request for Abatement.
This can also be done through a tax professional acting on your behalf.
Occasionally, you can submit your claim online using your online account.

Provide documentation that supports your case, including:

Financial hardship statements.
You should also provide evidence of compliance from the previous year.
Provide proof of the unusual circumstances that led to the delay.

What to Expect After Applying

The IRS will review your request and respond within weeks or months, depending on the case complexity.
Penalties will be reduced or removed if approved, though interest may apply.
You must stay compliant moving forward to avoid recurring issues.

Step-by-Step Guide to Applying for Self-Employed Tax Relief Using Your Online Account

If you're self-employed and can't pay taxes, IRS relief programs can help, but be careful. Getting the correct information ready is critical if you want a payment plan, penalty relief, or an offer in compromise.

This step-by-step guide will help you understand and feel confident about how to get tax relief from the IRS.

Review Your Tax Debt and Financial Situation

First, determine how much you owe in taxes, fines, and interest. Review your:

Self-employment income from current and prior year filings.
Examine your total business income, assets, and outstanding liabilities.
The estimated monthly payments you can realistically afford.
Determine the adjusted gross income and the average monthly expenses.

Knowing where you stand financially can help you choose the best program.

Choose the Right IRS Relief Program

Select the IRS program that aligns with your financial capacity:

Choose a payment plan if you can pay over time.
Choose the Currently Not Collectible (CNC) status if you cannot pay anything right now.
Choose an offer in compromise if full payment would cause hardship.
If you missed a deadline because of a qualifying circumstance, ask for penalty relief.

Gather All Required Documentation

Be prepared to provide detailed financial records. The IRS may request:

Proof of income from all sources.
The IRS typically requests the most recent three years' tax returns.
A financial hardship statement.
Monthly bank statements and profit and loss reports.
Documentation of deductible business expenses, fees, and health insurance payments is also required.
Documentation of assets, including vehicle titles and property records, is also required.

Complete the Correct IRS Forms

Based on the program, you may need:

Form 9465: Installment Agreement Request.
Form 433-A or 433-F: Collection Information Statements.
Form 656: Offer in Compromise Agreement.
Form 843: Request for Penalty Abatement.

Ensure all information is accurate and matches your supporting documents.

Submit Your Application

You can apply by:

You can expedite the processing of your application by using your online account.
You can also mail your application and supporting documents directly to the IRS.
Call the IRS directly for assistance if you're unsure where to start.
You can also seek assistance from a tax professional or an independent organization.

Keep copies of everything you send and note submission dates.

Monitor IRS Responses and Follow Up

After submission:

Responses to IRS requests for additional data or supporting documentation should be provided promptly.
Continue filing all future tax returns on time, even while your application is under review.
Make payments if required, especially for payment plans or periodic OIC offers.

IRS review times vary, so check your account regularly and maintain contact as needed.

Real-World Examples of Self-Employed Individuals Getting Tax Relief

IRS relief programs are not just theoretical—they work for real people. These case studies demonstrate how self-employed individuals have successfully reduced or resolved their tax debt by choosing the right program and submitting proper documentation.

Each case highlights the approach, the outcome, and key factors contributing to success.

Freelance Graphic Designer, Payment Plan Success

Scenario:
Sarah, a freelance designer, owed $12,000 in self-employment tax after an unexpectedly high-earning year. A decline in her business income the following year left her unable to pay in full.

Action Taken: She applied for a long-term payment plan online and chose direct debit to reduce fees.

Result: The IRS allowed her to pay $300 a month for 40 months. She avoided further penalties and continued to file her taxes compliantly.

Independent Contractor, Offer in Compromise Approval

Situation: Because of irregular income and unpaid estimated taxes, Mark, a subcontractor in the construction industry, owed $45,000. His expenses exceeded his adjusted gross income, leaving little room to pay.

Action Taken:
He submitted an Offer in Compromise, including Form 656 and detailed financial hardship statements supported by bank records and profit and loss statements.

Outcome:
The IRS approved a $9,000 settlement. Because of his low gross income, the application fee and initial payment were waived.

Small Business Owner, CNC Status Granted

Lisa, who runs her consulting business, saw her income drop significantly due to health problems and declining demand. She had to pay $25,000 and couldn't make monthly payments.

Action Taken:
She applied for Currently Not Collectible (CNC) status and submitted a Collection Information Statement (Form 433-A).

Outcome:
The IRS granted CNC status, halting all collection efforts. Lisa stayed compliant with current tax obligations while rebuilding her business.

These examples show that getting real help is possible if you have the proper papers, like recent tax returns, proof of income, and an honest look at your expenses. Whether you’re a freelancer, independent contractor, or sole proprietor, IRS programs are designed to help you regain control.

FAQs: Self-Employed Tax Relief, Home Office Deduction, and Health Insurance Deductions

These common questions help self-employed individuals and sole proprietors understand IRS relief programs, Medicare taxes withheld, and how their tax bill may be subject to review. This page was last reviewed or updated for accuracy. See the “page last reviewed” note for the most current IRS guidance.

Can I apply for more than one IRS tax relief program?

Yes, you can apply for multiple relief options. For example, request penalty relief while setting up a plan through your online account. Each application is subject to review. Ensure your Schedule C and sole proprietorship details are correct. Check the last reviewed page to confirm whether the version was last reviewed or updated.

How long does it take for the IRS to approve my application?

Timelines vary. Payment plans via your online account may be approved instantly, while Offers for compromise take longer. If Medicare taxes withheld are involved, the Taxpayer Advocate Service can assist. Always refer to the IRS instructions that were last reviewed or updated. Review the “page last reviewed” note for updates before applying.

Will applying for tax relief affect my credit score?

No, tax relief applications don’t impact your credit score. However, a previously filed tax lien may appear. Using your online account helps monitor your tax bill status. For sole proprietors or corporations, resolving debt protects business credit. Confirm the “page last reviewed” date and guidance last reviewed or updated by the IRS.

Do I need a tax professional to apply for IRS relief?

No, but a tax professional helps ensure accuracy, especially for Medicare taxes withheld, Schedule C reporting, or employee deductions. Expert guidance can reduce issues for those using a sole proprietorship or corporation structure. IRS procedures listed on the page last reviewed or updated provide form clarity, especially through your individual online account.

What happens if I miss a payment on my installment agreement?

Missed payments can lead to default. Use your online account or contact the Taxpayer Advocate Service immediately. Whether you're managing a corporation, a sole proprietorship, or employees, resolve it quickly. Refer to the version last reviewed or updated to check IRS guidance. Always verify with the current “page last reviewed” date.

Can the IRS deny my request for relief?

The IRS may deny relief due to missing records or Schedule C errors. Inaccurate details on Medicare taxes withheld can also disqualify you. Apply correctly through your online account. Guidelines that were last reviewed or updated should be followed precisely. Check the “page last reviewed” for the most current IRS standards.

How can I avoid future IRS tax problems as a self-employed person?

Use your online account to manage filings, tax bill status, and payments. File Schedule C correctly, deduct allowable expenses, and track Medicare taxes withheld. If operating a sole proprietorship or corporation, maintain detailed records. Follow instructions that were last reviewed or updated by the IRS, and check the “page last reviewed” before filing.

IRS Solutions for Self-Employed Taxpayers: Your Complete Guide to Federal Tax Relief