Millions of taxpayers struggle with tax debt they cannot afford to pay. Unexpected life events such as job loss, medical emergencies, or business setbacks often create financial hardship. When paying for essentials like food, housing, and healthcare takes priority, keeping up with tax obligations becomes nearly impossible. To help individuals in these situations, the Internal Revenue Service (IRS) offers programs designed to provide relief.
If you face serious financial challenges, the IRS has hardship options that may ease the burden. These programs include pausing collection efforts, reducing the amount owed, or setting up manageable payment plans. Depending on your specific financial circumstances, you may qualify for relief through Currently Not Collectible status, an Offer in Compromise, or an Installment Agreement. Each option addresses different levels of hardship and offers a path toward resolution.
This guide will walk you through the IRS process for evaluating hardship claims and explain the various types of relief available. It also highlights key factors the IRS reviews, such as income, household expenses, and overall ability to pay. By understanding these programs, taxpayers can take the first step toward resolving their debt and avoiding additional penalties or collection actions. With preparation and the right approach, even those in difficult financial situations can find a path to protect their future.
IRS financial hardship occurs when a taxpayer cannot pay their tax debt without sacrificing essential living expenses. This means that paying the full amount owed would prevent the individual or household from covering basic needs such as housing, food, utilities, transportation, and medical care. The IRS considers this scenario “undue hardship” and evaluates each case based on the taxpayer’s financial situation.
The Internal Revenue Service does not apply a universal income cutoff to assess financial hardship. Instead, the IRS considers each person’s economic difficulties on a case-by-case basis. The agency uses a set of national and local Collection Financial Standards to determine whether your living expenses are reasonable compared to your income. If the IRS determines that you are struggling to meet your household expenses and tax obligations, you may qualify for a hardship program.
Key factors the IRS evaluates include:
If your financial situation meets the IRS definition of hardship, you may become eligible for temporary relief or a long-term resolution. The IRS hardship options for taxpayers are designed to protect those who cannot pay taxes without experiencing significant financial hardship or long-term economic damage.
The IRS offers several hardship programs to help taxpayers struggling to meet their tax obligations due to financial hardship. Individuals and businesses, unable to fully pay their tax debt without jeopardizing their ability to cover basic living expenses, can opt for these options. The IRS considers each case individually, considering the taxpayer’s income, assets, and monthly expenses.
CNC status is for taxpayers who cannot make any tax payments without experiencing significant financial hardship. When approved, the IRS temporarily suspends most collection activities, including wage garnishments and bank levies. However, the tax debt remains, and interest and penalties continue to accrue. The IRS may review your financial situation periodically to determine if you are still eligible for CNC status.
An offer in compromise allows qualifying taxpayers to settle their tax debt for less than the full amount owed. This program is for those who can't pay their tax balance in full and can show that collecting the full amount would be a burden. The IRS evaluates each offer case-by-case basis and requires full financial disclosure. If accepted, the taxpayer must remain compliant with all future tax obligations.
Installment agreements allow taxpayers to pay their tax debt over time in monthly installments. This arrangement is common for those who can pay monthly but not all at once. A partial payment installment agreement is available for taxpayers who cannot repay their full debt before the IRS’s collection period expires. These plans also require regular financial review and compliance.
Each hardship program serves a different financial profile, but all aim to help taxpayers resolve their debt without incurring further penalties, interest, or collection actions. Understanding the eligibility requirements and IRS process is essential to selecting the program that best fits your financial situation.
An Offer in Compromise (OIC) is a federal hardship program that allows eligible taxpayers to settle their tax debt for less than the full amount owed. The IRS offers this option to individuals and businesses that cannot pay their tax obligations in full without experiencing significant financial hardship. Each offer is evaluated case-by-case, and approval depends on your financial situation and ability to pay.
When reviewing an offer in compromise, the IRS considers your income, necessary living expenses, asset equity, and overall financial condition. If the agency determines that collecting the full amount would cause undue hardship or would be unlikely given your current resources, they may accept your offer.
To qualify for an offer in compromise, you must:
You can apply by following the IRS process below if you meet these eligibility conditions.
Once submitted, the IRS evaluates your offer. Most collection activities pause while under review, but interest continues to accrue. If accepted, you must comply with tax payments and filings for five years or risk defaulting. The offer in compromise can be a valuable solution for taxpayers unable to pay their tax debt in full due to financial hardship.
Cot Collectible (CNC) status is a hardship program the Internal Revenue Service offers to taxpayers experiencing significant financial difficulties. The IRS may place your account in CNC status if it determines that collecting taxes from you would prevent you from covering basic living expenses. This designation temporarily suspends most collection activities, including wage garnishments, bank levies, and asset seizures.
CNC status does not eliminate your tax debt. While your account is in this status, the IRS will continue to assess interest and penalties on the unpaid balance. Any future tax refunds will also be applied to the debt. However, the CNC status temporarily relieves taxpayers who cannot make payments due to financial hardship.
To qualify for CNC, you must demonstrate that paying your tax debt would leave you unable to afford necessary living expenses. This includes costs such as housing, utilities, food, medical care, and transportation. You must also be in full compliance with filing all required tax returns.
CNC status offers valuable breathing room for taxpayers who cannot pay their tax debt. The IRS periodically reviews CNC accounts to determine if the taxpayer’s financial situation has improved. The IRS may remove CNC status and resume collection efforts if income increases or living expenses decrease.
When taxpayers cannot fully pay their tax debt, the IRS offers installment agreements and partial payment plans to help them manage repayment over time. The IRS designs these programs for individuals or businesses facing financial hardship, aiming to prevent aggressive collection actions while maintaining compliance with tax laws.
A standard installment agreement allows you to pay your tax debt in fixed monthly payments over a set period, typically up to 72 months. It is available to taxpayers who owe $50,000 or less in combined tax, interest, and penalties and have filed all required tax returns. Monthly payments are often set up through direct debit to reduce the chance of default. This option suits those who can afford consistent payments without causing significant financial hardship.
A short-term payment plan is for taxpayers who can pay their full balance within 180 days. This option is available for debts under $100,000, including penalties and interest. No setup fee is required, and the plan can be arranged online through the IRS Online Payment Agreement tool. It is ideal for those facing temporary financial difficulties but expecting to recover quickly.
A partial payment installment agreement may be appropriate for taxpayers who cannot pay the full amount before the IRS’s collection period expires. This plan allows you to make reduced monthly payments based on your financial situation. It requires detailed financial disclosure using Form 433-F or Form 433-A. The IRS will review your financial status every two years, and if your financial situation improves, your payment amount may increase. Any remaining balance after the expiration date of the collection statute may be forgiven.
The IRS has structured these hardship options for taxpayers to help them resolve tax obligations without compromising their basic living expenses. Choosing the right plan depends on your income, total amount owed, and ability to make tax payments. For many struggling individuals, these options provide a path to compliance while preserving financial stability.
To evaluate eligibility for a hardship program, the IRS assesses whether paying your tax debt would prevent you from meeting basic living expenses. Standardized financial criteria, official IRS forms, and a comprehensive review of your financial situation guide this process. If the IRS determines that collection would cause undue hardship, it may approve temporary or long-term relief.
The key factors the IRS considers include:
All sources of income are reviewed, including wages, self-employment earnings, retirement benefits, rental income, and any other recurring income. Taxpayers must report all income accurately when submitting a hardship request.
The IRS defines allowable living expenses by national and local Collection Financial Standards. These typically include:
Allowable amounts vary based on location and family size. If expenses exceed standard limits, the IRS may require documentation to justify them.
The IRS examines whether you have equity in assets such as vehicles, savings accounts, investments, or real estate. You may still qualify for hardship relief if liquidating assets would create further financial difficulties or if asset values are minimal.
Your ability to pay includes court-ordered payments like child support, alimony, or garnishments.
The IRS calculates your collection potential using Form 433-A, 433-F, or 433-B. You may qualify for an IRS hardship program if your total income and assets are insufficient to cover the tax debt without creating significant financial hardship. The IRS makes this determination on a case-by-case basis, requiring complete documentation.
Applying for IRS hardship relief involves more than simply requesting help. To qualify, you must follow a clear process and submit accurate financial information. Whether you seek an installment agreement, an offer in compromise, or Currently Not Collectible status, the IRS evaluates each case based on your financial situation, including income, expenses, and assets. The following steps will help you prepare and submit your request correctly.
Before the IRS will consider your hardship request, all required tax returns must be filed. Even if you cannot pay the balance due, filing demonstrates compliance and helps reduce penalties associated with unfiled returns.
The IRS requires a complete picture of your financial condition. Prepare and organize the following:
These records will help the IRS determine whether tax payments would cause significant financial hardship.
Choose the correct forms based on your situation:
Each form must be completed fully, with accurate figures and supporting documentation.
Please submit all forms, documents, and required payments or fees to the IRS by mail or online, when available. For an offer in compromise, include the application fee and initial payment unless you qualify for Low-Income Certification.
The IRS may contact you for clarification or additional documents. Responding promptly is critical to avoid delays or a denial. The IRS may return or reject your request if you fail to reply.
A complete and well-supported application shows the IRS that you cannot pay your tax debt under the current circumstances. This step-by-step process helps ensure your request receives proper consideration.
You will be given a written explanation explaining the IRS's reasoning if your hardship request is denied. Typical explanations include a finding that you don't meet the financial requirements for IRS hardship programs, incomplete forms, or missing documentation. Denials can be discouraging, but they don't mean you're out of options.
Several steps are available to correct the issue or challenge the decision.
Carefully read the IRS decision letter to understand why your request was denied. The notice may highlight errors, insufficient documentation, or income figures that exceed the hardship threshold.
You have the right to request a conference with the IRS collection manager. This meeting lets you clarify financial details or provide missing documentation that may affect the decision.
If you disagree with the outcome after the managerial review, you may file an appeal through the IRS Collection Appeals Program (CAP). This process allows for an independent review of your case before further collection actions occur.
The Taxpayer Advocate Service might be able to assist if you are in severe financial distress and are unable to get your problem resolved through the normal channels. For taxpayers who qualify, they offer free assistance.
A hardship denial is not final. If you promptly address the issues identified, you may still qualify for relief under a revised application or through appeal.
Find answers to common questions about IRS hardship programs, eligibility, application steps, credit impact, and financial changes.
Once you submit a complete application for an IRS hardship program, the IRS will pause most collection activities during the review process. However, the IRS may still file a federal tax lien and continue to accrue interest and penalties. While the IRS evaluates your financial hardship, timely and accurate filing protects you from aggressive enforcement.
Not automatically. IRS hardship programs do not eliminate penalties or interest. You must apply separately for penalty relief under the reasonable cause provision or the first-time penalty abatement policy. Interest generally continues unless the underlying tax or penalty is removed. These options may be available alongside a hardship program if you meet eligibility requirements.
The IRS periodically reviews hardship cases. Your eligibility may change if your financial situation improves through higher income or reduced expenses. For currently noncollectible or partial payment plans, the IRS may adjust your agreement or resume collection. You must notify the IRS of any changes in your financial situation while under a hardship program.
Yes, but typically one hardship program is pursued at a time. You may apply for a different IRS hardship option if your financial circumstances change or the IRS denies your initial request. You could, for instance, switch from an installment plan to a compromise offer. The IRS evaluates each program based on your financial situation.
It depends on the hardship program. Approval for simple installment agreements may be granted promptly. Applications for an offer in compromise typically take six to twelve months to process. Evaluations for Currently Not Collectible status often take several weeks. To avoid delays, submit all documentation accurately and on time. The IRS may request additional financial details before deciding on your case.
The IRS does not report hardship programs directly to credit bureaus. However, IRS offers that include tax liens may appear in public records and affect your creditworthiness. Accepted programs like Currently Not Collectible or offers in compromise do not reduce your credit score directly, but the presence of liens may impact future financial applications.
You may appeal or request a different resolution if your hardship program is denied. The IRS offers multiple options, including installment agreements, partial payment plans, or temporary collection delay. You can also contact the Taxpayer Advocate Service. Act quickly, review the reason for rejection, and explore all available hardship relief programs for your situation.
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