One of the few occasions when hearing from the government makes you pleased is when you receive a tax refund. But, communicating with Uncle Sam may not be as enjoyable if you owe the government money, particularly if you are struggling to make ends meet. Follow the Tax Debt Relief Program.
You might want to check to see if you qualify for any tax debt relief alternatives if you are having trouble finding a method to pay the IRS the money you owe this tax season. There are programmes accessible, but you should also take precautions to avoid scammers.
What is relief from tax debt?
When you are unable to pay your tax obligation, the government might assist you through tax debt relief. This takes the form of a settlement or payment plan in which the IRS consents to settle your tax liability for a lesser sum than what you actually owe.
Who benefits most from tax debt relief?
For people, tax debt relief is best when:
- Having financial difficulties that make it difficult or impossible for them to pay their tax due in full
- dealing with a natural disaster’s financial effects
- They are living paycheck to paycheck and are unable to pay their unexpectedly larger tax payment.
Tax debt reduction methods and programmes
For taxpayers who owe back taxes, the IRS offers a number of tax debt reduction services.
Installment contracts (IA)
You can extend the time you have to pay your taxes using an installment agreement (IA). There are two IAs available:
Plan for quick payments
You have up to 120 days to pay the outstanding sum if you qualify and owe the IRS no more than $100,000 (penalties and interest included). There is no cost associated with entering into this payment plan, and you can apply online, by mail, by phone, or in person.
a lengthy payment schedule
A long-term payment plan might be more appropriate if you owe less than $50,000 (including penalties and interest) and need more than 120 days to clear the unpaid debt. It has a 72-month repayment schedule. Direct payments are an option, however automatic debit withdrawals are required if your balance is more than $25,000 per month.
The payment option you decide on will also affect the setup charge. The setup charge for direct payments, which can be paid using a money order, the Direct Pay site, or the EFTPS, is $130 if you apply online or $225 if you apply by phone, mail, in person, or in person. You might be qualified for a $43 setup fee reimbursement if you fit the low-income taxpayer requirement (with an adjusted gross income at or below 250 percent of the federal poverty threshold). The setup charge for automatic debit withdrawals is merely $31 online and rises to $107 for applications made by mail, phone, or in-person. If you are a low-income taxpayer, you can also be qualified for a fee waiver.
You are still subject to interest and late payment fees under either agreement. They will carry on until the entire sum is paid.
relief for innocent spouses
Innocent spouse relief might be helpful to you if you were the victim of tax fraud or mistakes that you were unaware of.
Send Form 8857, Request for Innocent Spouse Relief, together with any necessary supporting documentation to the IRS to submit your application for innocent spouse relief. Within two years of the IRS’s first collection effort, the request must be made.
Remember that the IRS’s decision may not be made for up to six months after receiving your request.
In-Compromise Offer (OIC)
You can settle your tax liability through an Offer in Compromise (OIC), which permits you to pay less than what you owe. You must demonstrate that you:
- not have enough money or assets to pay back during the statutory period (Doubt as to Collectibility)
- are unable to pay, doing so would be unfair or inequitable because of a mitigating condition, or it would put them in a difficult financial situation (Exceptional Circumstances or Effective Tax Administration)
- Due to a tax examiner’s incorrect application of the tax code, you may not owe what is being assessed (Doubt as to Liability)
Also, you should have submitted any required tax filings, made any required anticipated payments for the current tax year, and received any bills for which you intend to ask for an OIC. Also, you must not be a party to a bankruptcy in order to qualify.
Be aware that OICs have a somewhat high denial rate; therefore, before continuing with the application process, you might wish to seek expert assistance. Instead, you can check your eligibility for a settlement using the OIC pre-qualifier tool.
You must finish and send the following forms to the IRS in order to apply:
- Together with any other supporting evidence called for by the instructions, submit Form 433-A (OIC) Collecting Information Statement for Wage Earners and Self-Employed Persons.
- Companies should submit Form 433-B (OIC) Collection Information Statement along with any other documents called for by the guidelines.
- Form 656 (Offer in Compromise) and any other paperwork needed in accordance with the guidelines
Include your initial payment and the $205 application fee in the package as well, or send it through the EFTPS.
At this time, not collectible (CNC)
CNC may be an option if you can show that paying off your tax obligation will make it impossible for you to cover your essential living costs. That offers you time to plan how to pay the IRS back without being concerned about collection efforts.
By calling the IRS directly at the number listed on your tax notice or bill, you can request CNC status. A Collection Information Statement (Form 433-A, Form 433-B, or Form 433-F) and supporting paperwork may also be requested by the IRS in order to validate your claims.
It’s crucial to remember that obtaining CNC status has no effect on your tax liability. You will continue to owe, and as interest and penalties are added, your overall debt will rise.
Options to reducing tax debt
The following are some other options to consider if you decide tax debt relief isn’t the best option for you:
- Utilize a credit card to pay your taxes off: Depending on your circumstances, doing so could result in financial savings. Also, by using this technique, your debt is transferred from the IRS to the credit card company, perhaps offering you piece of mind.
- Taking out a HELOC: If you have equity in your house, a HELOC may be an option for you. To prevent losing your home, be sure you can pay off the balance.
- Make more money: If you don’t have enough cash on hand to cover your tax obligation, consider measures to increase your income. Do a side gig, sell your old stuff, or find a part-time employment.
- Borrow from your 401(k): A 10% early withdrawal penalty won’t apply if you borrow money from your 401(k) retirement plan to pay back your taxes as long as you’re younger than 59 12. If you choose this course, you will have five years to repay yourself plus interest.
How to spot a scam or reputable tax debt reduction company
It’s simple to enlist the aid of the first internet search result you click on if you’re looking for immediate assistance from a tax debt relief organisation to deal with your tax problem. But, you must be informed of frauds and what to look out for.
If a business requests money before work is completed, it is one warning sign. When you hire the assistance of a fraudulent tax debt relief company, they typically demand a payment up front and guarantee the cancellation of your tax burden.
You might wish to conduct your own investigation if a corporation informs you that you are eligible for an IRS hardship programme. According to the Federal Trade Commission, the majority of taxpayers are ineligible for these programmes, and the majority of businesses prefer to take your money and run than to help you.
The FTC advises resolving your concerns with the IRS to resolve your tax debt before signing up with a third-party organisation, particularly one you are unsure of. Make a complaint to the FTC if you think you’ve been duped.
Next actions
Being in debt for taxes you can’t pay can be stressful. The good news is that you have access to a number of tax debt relief options through the IRS. There are other options available to you if you don’t think you qualify for tax debt relief. It could be a good idea to speak with a tax expert to seek their advice on the best course of action for your particular circumstance.