IRS Tax Hardship Help | Community Tax (original) (raw)
IRS Tax HardshipAndre Perreault2026-01-16T15:38:55+00:00
IRS Tax Hardship
Are you in need of tax relief due to financial hardship?
Many taxpayers aren’t aware of the Internal Revenue Service Hardship program, a federal government program that offers taxpayers suffering from financial hardship the opportunity to find tax relief.
Under IRS hardship rules, if a person would face unfair financial hardship after the collection of their outstanding taxes, they may be able to qualify for an “Uncollectible” status.
Once declared “Currently Not Collectible”, the IRS cannot begin any tax collection actions to take your paycheck or property in lieu of tax payment. With the help of a tax advocate for hardship, you can begin constructing an alternative repayment plan. Set up monthly payments you can afford, clear your name off the IRS delinquent tax list, and find back tax relief.
What is the IRS Hardship Program?
The IRS Hardship program is made to help taxpayers who are struggling to balance back taxes alongside their daily cost of living. Accounts can go into Currently Not Collectible status for a variety of reasons, but the IRS describes the main consideration for the IRS Hardship program as when , “collection of the liability would create a hardship for taxpayers by leaving them unable to meet necessary living expenses”.
To prove your tax hardship to the IRS, you will need to submit information about your financial situation to the federal government in a hardship request. Because the IRS hardship program requires the disclosure of very sensitive financial records and personal information such as a social security number, some taxpayers are weary of submitting a Collection Information Statement and instead opt for an online payment agreement instead. Payment arrangements like that are much easier to qualify for than the IRS hardship program and require much less personal disclosure.
IRS Hardship Eligibility Requirements:
How to Qualify and Apply?
If you’re unable to pay your tax bill because you have just enough money for basic living expenses, you might be able to qualify for a financial hardship program.
Applications are done using Form 433A/433F (for individuals or self-employed) or Form 433B (for qualifying corporations or partnerships). These Collection Information Statement forms and supporting documents from financial institutions would report:
- A list of everything the taxpayer owns (bank accounts, liquid assets, investment portfolios, retirement savings, cars, trucks, motorcycles, boats, real estate properties, life insurance, etc.)
- A corresponding market value for each asset
- Income statements for the past three months
- Spending statements for the past three months
- Reporting a three-month average of income and expenses based on category
The IRS will use the information reported on the Form 433A, 433B or 433F to determine whether the account is eligible for tax hardship. Generally speaking, IRS hardship rules require:
- An annual income less than $84,000 per year.
- Little or no funds left over after paying for basic living expenses.
- Basic living expenses fall within the IRS guidelines. The IRS includes four categories for allowable living expenses, called “collection financial standards”:
- Food, clothing, housekeeping supplies, personal care products, and miscellaneous items
- Out-of-pocket health care expenses
- Housing and utilities
- Transportation
Tally up your total allowable living expenses and deduct that number from your total monthly income; the resulting number is what’s called a “net disposable income,” and what the IRS expects you to pay toward your taxes.
By proving you have little to no net disposable income with reasonable living expenses, you can meet the eligibility requirements and qualify for the IRS Hardship program.
IRS hardship rules state that CNC codes can only be used for “individual or joint IMF assessments, sole proprietorships, partnerships where a general partner is personally liable, and LLCs where an individual owner is identified as the liable taxpayer”. In other words, non-collectible status and the IRS hardship tax relief program is generally not intended for most large-scale corporations, but rather individual taxpayers, self-employed individuals and small business owners.
Corporations unable to pay delinquent taxes due to hardship should consider researching bankruptcy laws instead.
Qualify for IRS Hardship?
What are the IRS Hardship Rules?
If your account is declared CNC under tax hardship, the IRS can no longer impose any collection activities in an effort to settle your federal tax dues. Common collection actions include, but are not limited to:
- Tax Lien. A federal tax lien is the federal government’s legal claim against your property when you neglect to pay a tax liability. It protects the government’s interest in your property—including real estate, personal property, and financial assets—until your dues are repaid in full.
- Tax Levy. Whereas a lien secures the government’s interest in your property, a levy actually takes it away on their behalf and applies it to your outstanding balance. If you don’t make arrangements to settle your tax balance, the IRS can levy, seize and sell any property you own. If a levy creates immediate financial hardship, it may be released, but that does not mean you are exempt from settling up on your outstanding payments.
- Garnished Wages. Sometimes called wage levies, occurs when the IRS collects a portion of your wages and applies them to your outstanding back tax. A part of your wages may be exempt based on the amount of standard deductions and the number of personal exemptions you claimed, but they will continue to be removed until the amount of overdue taxes is paid, you make other arrangements to settle your balance, or the levy is lifted.
IRS hardship rules can apply to an account for up to 10 years, which is generally how long the IRS has to collect back taxes before the statute of limitations is enforced.
The IRS will review the taxpayer’s information every two years to ensure they still qualify for IRS Hardship status. If they find an increase in income and believe you’ve overcome your economic hardships and that it’s within your means to repay your taxes, they will remove the CNC status and revoke the IRS Hardship status.
While you’re in IRS Hardship status, the government cannot take your paycheck, seize your property, or wipe your bank account. However, just because they let up on their collection activity and pressure does not mean your obligations are lifted. The IRS hardship program does not stop tax penalties and interests. The penalties for late filing and paying taxes include:
- Failure to File. When you don’t file your tax return by the return due date, April 15th, or by the extended date if you had requested for a tax extension.
- The penalty is 5% of the tax due (minus taxes paid on time and credits) for each month or part month late, up to 25%. The IRS calculates it as follows: Tax shown on return, minus timely payments and credits, multiplied by 5% monthly, capping at 25%. If over 60 days late, the minimum penalty is either the specified amount or 100% of the underpayment, whichever is smaller.
- Failure to Pay. When you don’t pay the correct amount reported on your tax return in full by the due date or April 15th (an extension to file doesn’t extend the time to pay). The penalty for unpaid taxes is 0.5% per month, capping at 25% of the total unpaid amount.
Notice how much steeper the penalty is for failure to file versus failure to pay; this is the IRS’s way of encouraging taxpayers to file a tax return every year, even if they’re unable to pay. For this reason, be sure to file your required return each year, even if you face tax hardship.
If your account is currently considered in IRS financial hardship, and you owe taxes for an upcoming year, that status does not automatically roll over; each tax year is considered separately. If possible, it’s best to pay the new taxes promptly, since it likely won’t affect your IRS hardship from the past year(s) and it will prevent incurring further costs.
If you’re unable to pay your new taxes, it is possible to request CNC IRS financial hardship for that tax period as well, but this will become increasingly more difficult each year. As noted, although the IRS will temporarily pause collection methods under CNC financial hardship, penalties will continue to apply and the IRS Hardship rules enforce the eventual repayment of the outstanding taxes through alternative payment plans.
Owe the IRS and Can’t Pay?
How do Alternative Payment Plans Work?
Every year within the IRS hardship program, the government will email you stating how much you owe in unpaid taxes. If you fall upon a sum of money, they recommend making payments when possible. However, the IRS does offer affordable alternative payment plans for taxpayers facing tax hardship, such as:
- IRS Installment Agreement. A payment plan option is an agreement to pay back your tax obligations over an extended period of time in a series of installments, and one of the best ways to avoid incurring a lien or levy. You’ll continue to incur interest and fees until the balance is repaid, but locking into an installment agreement can help prevent failure to pay penalties being added to your account in the future.
- IRS Settlement/Offer in Compromise. An IRS Settlement (sometimes called an Offer in Compromise) is sometimes a better option than IRS hardship. It’s an available alternative payment option for those who see no capability of paying off their tax liability within the immediate future. Instead, the taxpayer proposes an alternative amount to pay the IRS, and if the government accepts their offer, they compromise and settle with the proposed amount.
- IRS Fresh Start Program: The Fresh Start Initiative grants more flexible options for taxpayers to pay or absolve their back taxes without penalties by giving them a “fresh start” with the IRS.
How Can I Get Help for Tax Hardship?
If you’re faced with IRS financial hardship, your best course of action is to hire a professional tax advocate for hardship. A trusted tax professional will advocate on your behalf and find you the best form of back tax relief, whether it’s in the form of IRS hardship, installment agreement, or settlement.
Community Tax provides industry-leading tax advocates for hardship. We offer attorneys to help you at every step of the way, whether it’s to stop tax liens, levies, and wage garnishment, or to understand your installment agreement. We can alleviate the pressure of your tax bills allowing you to rest a bit easier and know you’re back on track to finding your way out of financial hardship. Contact us today to learn how Community Tax professionals can help make your tax problems a thing of the past.
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California Residents: Please see our California Consumer Privacy Act Notice for additional information on the way we collect, use, and share your personal information and how to exercise your rights under the CCPA.