IRS Hardship Program : Relief Options and Eligibility In 2024

IRS Hardship Program 2024

IRS Hardship Program

The IRS Hardship Program, also known as Currently Not Collectible (CNC) status, offers relief for taxpayers facing financial hardships that prevent them from paying their taxes. In 2024, understanding the nuances of this program remains critical for individuals and businesses seeking tax relief.

What is the IRS Hardship Program?

The IRS Hardship Program, also known as the Currently Non-Collectable Status, is a vital support system for taxpayers who find themselves in a challenging financial situation due to back taxes.

This program recognizes that certain life circumstances can render you unable to fulfill your tax obligations immediately.

It is designed as a temporary measure to alleviate the burden on taxpayers who are genuinely unable to pay due to financial hardship.

The most significant aspect is the suspension of IRS collection activities for up to a 10-year period. This reprieve is critical as it offers you the opportunity to recover financially without the added stress of dealing with immediate tax debts.

It is important to understand that this program does not eliminate your tax debt; rather, it delays collection efforts, providing much-needed time to manage your financial affairs more effectively.

Federal Tax Relief Hardship Program

Dealing with issues of tax debt can be a hard and stressful situation for taxpayers. Fortunately, the IRS hardship program is here to help. The federal tax relief hardship program is for taxpayers who are unable to pay their back taxes. In other words, taxpayers in need can apply for the IRS’ Currently Not Collectable status. You can qualify for the IRS hardship program if you can’t pay taxes after paying for basic living expenses. Likewise, while you’re in the IRS hardship program, the IRS cannot take collection measures out on you. In other words, the IRS cannot:

  • Seize your property.
  • Take your paycheck.
  • Wipeout your bank account.

However, being in the IRS hardship program doesn’t mean you won’t have to pay back taxes. The government just gives you a more stress-free way to handle them, like the IRS Fresh Start program.

How Long Does the IRS Hardship Program last?

Depending on your situation, you could be in an IRS hardship program for up to 10 years. Typically, the IRS has 10 years to collect back taxes. After the 10 years is up, the IRS is supposed to remove the back taxes. For instance, let’s say you filed taxes in 2010 and you owe back taxes. In that case, the IRS could collect the back taxes until 2021. If you filed for Currently Not Collectible status in 2010, the IRS will leave you alone. Additionally, you could stay in the IRS hardship program until 2021. After 2021, the IRS will remove the taxes you owed from 2010.

Who Qualifies for It? 

To qualify for the IRS Hardship Program, specific criteria must be met. This program is specifically tailored for individuals and corporations that find themselves with minimal funds remaining after covering their basic living expenses. The income threshold for this program is set below $84,000 annually. However, each case is considered on its own merits, and other factors such as the cost of living in your area and your overall financial situation are also considered.

How do I stay in the IRS Hardship program?

The IRS will continue to review your financial situation every two years. For instance, if your income increases, you may be taken out of the program. In other words, if the IRS determines you’re able to pay back taxes, you’ll have to pay. In that case, the best thing to do is to come up with a tax relief plan. Work with a tax relief professional who can determine the best course of action to pay back taxes. The professionals at FinishLine Tax Solutions have years of experience helping their clients out of tax debt. Likewise, we have years of experience dealing directly with the IRS. In other words, we know how the IRS works. Our experience will help you get out of tax debt and back on the road to financial freedom.

Relief Options Available under the IRS Hardship Program

Participants in the Hardship Program can benefit from various forms of relief, including the suspension of collection actions like wage garnishments and bank levies. This respite allows taxpayers to address their financial issues without the immediate pressure of tax debts, although it does not eliminate the obligation to pay.

What Qualifies for the IRS Hardship Program?

Taxpayers facing circumstances that significantly impede their ability to pay their taxes, such as unemployment, serious illness, or other financial crises, may qualify for the program. Detailed documentation of these hardships is crucial for eligibility, underscoring the importance of transparency and thoroughness in the application process. 

What if I owe new back taxes?

Let’s say you filed taxes in 2020 and turns out you owe. What happens if you are currently in an IRS hardship program? In that case, the new taxes will not be automatically included in the IRS hardship status. The IRS treats each new tax year separately. Therefore, your 2010 taxes will be treated completely differently from your 2021 taxes. In other words, the IRS can still pursue you for the new 2020 taxes, but not the 2010 taxes. Should you find yourself in a situation like this, it’s often recommended that you pay off the new taxes. If you are unable to pay your new taxes, you can also place them in the IRS hardship program. However, it can be difficult to do this if every year you owe taxes.

Benefits of the Program

The Hardship Program offers multiple benefits, including protection from aggressive collection actions and the accumulation of additional penalties and interest. It provides a path toward financial stability for taxpayers, allowing them to address their debts in a manageable way.

How do I pay back taxes while in the IRS Hardship program?

It’s possible to pay back taxes even when you’re in the federal tax relief hardship program. In other words, if you have some extra money to make a small payment, you should. Additionally, the IRS recommends making payments while you’re in the IRS hardship program. However, paying back taxes shouldn’t affect your IRS hardship status.

IRS Fresh Start program

If you have some taxes in the IRS hardship program but want to pay back current taxes, there are options. Additionally, if you come out of the hardship program and need to pay back new taxes, there are options. The IRS offers the Fresh Start program for taxpayers who want an affordable way to pay back taxes. In other words, the IRS Fresh Start program allows taxpayers to pay off the substantial tax debt in six years. Each month, you’ll make payments based on your current income. Your payment amount will also be based on the value of your liquid assets. At the end of six years, your tax debt should be paid off in full.

How is the IRS Fresh Start program helpful?

The IRS Fresh Start program is a very helpful tool for taxpayers to pay off taxes. In other words, the program offers a simple way to pay off tax debts. Additionally, the Fresh Start program allows you to avoid many downsides of owing taxes, including:

  • Interest
  • Penalties
  • Tax liens
  • Seizure of assets
  • Wage garnishments

Taxpayers who owe $50,000 or less to the IRS can apply for the Fresh Start program. Additionally, the IRS offers three repayment options from which to choose.

IRS Fresh Start Program Repayment Options

The IRS provides three payment plans within the IRS Fresh Start program. In other words, taxpayers have the flexibility of choosing from three different payback plans.

  • First, the IRS offers an extended installment agreement. This payment plan gives taxpayers up to six years to pay off the tax debt in affordable monthly payments.
  • Second, the IRS offers an Offer in Compromise. While an OIC is rare, it gives taxpayers the opportunity to settle their tax debt for much less. Oftentimes, the settlement amount is much lower than the actual value of your tax debt.
  • Third, the IRS offers a tax lien withdrawal. This option is available for taxpayers who can pay off their debt via direct debit. Additionally, this option lowers the threshold for which the IRS will place a tax lien on your account.

Which IRS Fresh Start payment plan is right for me?

You may be unsure of what IRS Fresh Start repayment option is best for you. In that case, you may want to hire a professional tax resolution specialist to advise you. Additionally, a tax professional can file the needed IRS forms to assist you in repayment options. The goal is to choose the repayment plan that best suits your current finances.

How to Apply For Hardship Tax Relief

The application process is a critical step in accessing it. You need to accurately complete the necessary forms – Form 433A or 433F for individuals and Form 433B for corporations. These forms are comprehensive and require detailed financial information, including income, expenses, assets, and liabilities. The accuracy and completeness of this information are paramount as it forms the basis on which the IRS will evaluate your application for hardship status.

Key Considerations

It’s essential for applicants to remain compliant with tax laws, including filing all required tax returns and making current year tax payments. This compliance demonstrates a good faith effort to meet tax obligations, despite financial hardships.

  1. Timely Filing of Tax Returns: One of the key requirements while under the Hardship Program is the timely filing of all tax returns. This includes filing returns by the due date each year, even if you cannot pay the taxes owed. Timely filing demonstrates to the IRS your commitment to staying compliant and responsible, despite your financial difficulties.
  2. Paying Current Year Taxes: Equally important is the need to pay any taxes due for the current year. The Hardship Program does not exempt you from paying your current tax liabilities. If you accrue new tax debts while under this program, it could be seen as an inability to maintain tax compliance, risking your status in the program.
  3. Understanding Compliance Implications: The rationale behind these requirements is that the IRS Hardship Program is designed to help you manage past tax debts, not to facilitate the accrual of new debts. Maintaining compliance shows the IRS that you are making a good faith effort to fulfill your tax responsibilities, despite past difficulties.
  4. Setting Up Payment Plans for Current Taxes: If you find yourself unable to pay your current year’s tax liability in full, it is important to proactively engage with the IRS. Consider setting up a payment plan or exploring other payment options for the current year’s taxes. This demonstrates your commitment to staying compliant and managing your tax responsibilities.
  5. Impact of Non-Compliance: Failure to comply with these obligations, such as not filing returns or not paying current taxes, can lead to the IRS revoking your non-collectable status. If this happens, the IRS can resume active collection actions, which could include garnishing wages, levying bank accounts, or seizing assets.
  6. Regular Reviews and Compliance Checks: The IRS periodically reviews your financial situation and compliance status while you are in the Hardship Program. These reviews assess whether your financial condition has improved and whether you have remained compliant with tax laws. Staying compliant increases the likelihood of maintaining your non-collectable status during these reviews.
  7. The Role of Tax Professionals: Navigating tax compliance while under financial hardship can be challenging. Seeking advice from tax professionals can be invaluable. They can assist in understanding your obligations, help in filing tax returns, and advise on managing current tax liabilities.
  8. Record Keeping and Documentation: It is advisable to keep thorough records of all your tax filings and payments while under the Hardship Program. This documentation can be crucial during IRS reviews and can serve as evidence of your compliance and commitment to fulfilling your tax obligations.

Year-on-Year Update

The IRS has announced penalty relief for nearly 5 million taxpayers for the tax years 2020 and 2021, providing about $1 billion in relief. This action addresses the lack of automated collection reminder notices during the pandemic, with most beneficiaries earning under $400,000 annually. The relief is automatic for eligible taxpayers, including refunds for those who’ve already paid penalties. Starting in 2024, collection notices will resume, marking the end of the pandemic-related pause. For more details, you can visit the IRS news release here.

Understanding the Impact on Future Refunds

Tax Refunds and the IRS Hardship Program

Being under the IRS Hardship Program has specific implications for your tax refunds, an aspect that is often overlooked but crucial to understand. Here is a detailed look at how this status affects your future tax refunds:

  1. Application of Refunds to Outstanding Debt: While you are under the IRS Hardship Program, the IRS may use any tax refunds you are owed to offset your outstanding tax debt. This is an automatic process where the IRS diverts your refunds to reduce the amount you owe.
  2. Duration of the Offset: This practice of applying refunds to your debt continues for as long as you are in the non-collectable status. Each year, when you file your taxes, any refund you might be entitled to will first be applied against your outstanding tax liabilities.
  3. Impact on Financial Planning: The potential loss of annual tax refunds can have a significant impact on your financial planning. Many people rely on their tax refunds for various purposes, such as paying down debt, covering essential expenses, or saving for future needs. The absence of this expected financial boost necessitates rethinking and adjusting your budgeting and financial planning.
  4. Tax Withholding Adjustments: Given that your refunds will be used to pay down your tax debt, it may be wise to adjust your tax withholding if possible. This means having less tax withheld from your paycheck, which can increase your take-home pay and help ease your immediate financial burden. However, this should be done carefully to avoid under-withholding, which can lead to a tax bill and potential penalties at the end of the year.
  5. No Penalty for Refund Application: It is important to note that the application of your tax refund to your outstanding debt is not penalized by the IRS. This process does not attract additional fees or penalties. It is a straightforward application of funds to reduce your tax liability.
  6. Long-Term Implications: The application of your refunds to your debt plays a role in the long-term strategy of resolving your tax situation. While it may seem disadvantageous to lose out on refunds, it contributes to gradually decreasing your overall tax debt, potentially leading to a more manageable financial situation in the future.
  7. Consulting with Tax Professionals: Understanding the implications of the IRS Hardship Program on your tax refunds is complex, and consulting with tax professionals can provide clarity. They can help you understand how this will specifically affect your situation and assist in making informed decisions about tax withholding and overall financial planning.

Get Tax Help from the Professionals

If you’re in a tough financial situation, it shouldn’t be made even harder by tax debt. The IRS understands that and that’s why they created the IRS hardship program. However, don’t be mistaken, the IRS will still do whatever they can to get their money. Taxpayers who are unable to pay back taxes can apply for this program. Additionally, the experts at FinishLine Tax Solutions will be there to help every step of the way. If you’re looking to get out of tax debt for good, call us immediately. When dealing with tax debt, the smartest thing to do is to act and act quickly. At FinishLine Tax Solutions, we can help. In other words, we’ll get you to the tax finish line. Call us today and discover how we can get you on the road to financial freedom.

FAQs

Under what circumstances can a participant get a hardship distribution from a retirement plan?

Plans may offer hardship distributions for specific criteria such as medical expenses or funeral costs but not for all situations like home purchases.

What is the IRS definition of hardship for a 401(k) plan?

Hardship for a 401(k) plan is defined by the specific criteria set by the plan, focusing on immediate and heavy financial need.

How do participants show that they're experiencing a hardship?

Documentation or other acceptable methods must be provided to the plan demonstrating the immediate and heavy financial need.

Are hardship distributions allowed from an IRA?

Unlike 401(k) or 403(b) plans, IRAs do not allow for hardship distributions.

What are the consequences of taking a hardship distribution of elective contributions from a 401(k) plan?

Taking a hardship distribution can have tax implications and may affect your retirement savings.

What if I am facing financial difficulties affecting my ability to pay taxes?

The IRS suggests contacting them immediately for assistance, as there may be steps to help ease the burden, including filing for an Offer in Compromise or setting up a payment plan​ (IRS)​.

How can taxpayers apply for Offers in Compromise and avoid scams?

The IRS has released how-to videos guiding taxpayers on applying for Offers in Compromise, aiming to prevent them from falling victim to scams​ (IRS)​.

What should taxpayers know about IRS collection activities and potential scams?

The IRS does not demand specific payment methods or threaten legal action without offering the chance to question or appeal the amount owed. Be wary of such tactics from scammers​ (IRS)​.

Is the Collection Statute Expiration Date (CSED) affected by COVID-19 relief?

The COVID-19 relief does not change the CSED, but the IRS continues to take necessary actions to protect all applicable statutes of limitations​ (IRS)​.

Are new levies being issued during the People First Initiative?

The IRS suspended new automated levies and systemic requests until a specific date, with certain exceptions based on pressing circumstances​ (IRS)​.

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