What is an IRS Hardship Program and How Do You Apply?

Article Summary:

An IRS hardship program is a government application that allows individuals who owe outstanding taxes to apply for tax deferment or forgiveness. This is similar to the Fresh Start Program, which will in turn halt any collections actions against them. The taxpayer changes their status to “Currently Not Collectible.” Once this status is changed, they are not required to make further payments to their existing debt balance unless their financial situation changes. Applying for an IRS hardship program requires the completion of several forms along with supporting documentation.

If you are overwhelmed by tax debt, you are certainly not alone. According to one study, more than 1.1 million taxpayers owe money on their taxes, with an average debt of $52K (source). The good news is that help is available for delinquent taxpayers who are struggling to make ends meet.

This may come as a surprise to some, but if you owe taxes and can’t afford to pay them — and can prove you are dealing with a real hardship — the IRS may defer or even forgive your tax debt. The IRS’s decision to change some people’s tax status was designed to give taxpayers some cushion and leeway on taxes they owe but, for whatever reason, cannot pay.

Keep reading to learn more about the IRS hardship program, whether you qualify, and how to apply to this program.

IRS hardship program 101

The IRS hardship program (Part 5, Chapter 16, Section 1) was designed to give those going through hardship a little glimmer at the end of that dark tunnel in the form of tax deferment or tax forgiveness. The most important thing that the program does immediately is to change your tax status to “Currently Not Collectible” (CNC).

“Currently Not Collectible” status

Once your tax status changes to “Currently Not Collectible,” the IRS must cease all requests, pressure tactics, and collection actions for unpaid taxes. Collection actions can include things like wage garnishment, bank levies, and property seizures.

Once this has been changed, you have virtual protective armor that assists you in dealing with whatever financial storm you need to in order to one day pay these taxes. However, be aware this does not halt or stop IRS penalties.

IMPORTANT! If you owe more than $10,000 in federal taxes to the IRS, they could still file a lien against you, regardless of your CNC status. If your tax bill exceeds $10,000, it’s best to speak to a tax attorney or the very least, a tax expert/accountant to get an idea of what you owe.

How to apply for the IRS hardship program

If you qualify for the hardship program, you can start compiling your bills and financial information for the IRS.

  1. Gather all evidence of your inability to pay taxes, including bills, pay stubs, bank statements, etc. from the last three months (at least). In addition to this, gather all information on your necessary living expenses, such as monthly bills to explain your financial situation.
  2. Fill out a Collection Information Statement: IRS Form 433-A (individuals), 433-F (self-employed), or 433B (corporations and partnerships).
  3. Gather information on all your assets with an estimate of the fair market value (FMV) of each of them. Using this information, the IRS determines your ability to pay vs. your net worth and how much tax relief you will receive.
  4. Submit all relevant forms and supporting documentation to the IRS, along with a hardship letter.
  5. Get approved for hardship status and change to a CNC status.
  6. Receive IRS Letter 4223 closing your case and confirming CNC status.

Keep in mind that this program is for people who filed legitimately and cannot pay what they really owe. It’s not for people who get caught by the IRS with tax evasion or something in that realm.

Who qualifies for hardship status?

Not everyone qualifies for hardship status under the IRS program. In most cases, you need the following to qualify.

  • Income of less than $84,000. Your income needs to be less than $84,000 in total to qualify. This means that if you receive income from somewhere outside of your main employment, you will also need to include this when applying for hardship status.
  • Proof of hardship with living expenses. You need to prove how little money you have in comparison to your living expenses. As stipulated by the IRS, living expenses are food, utilities, clothing, and household supplies, among others.
  • Be a U.S. resident. You might owe taxes to the IRS from an investment that you made in a property or a business and are not a citizen of the United States. If this is the case, you unfortunately can’t apply to the hardship program.

Remember that the IRS hardship status isn’t just for individual tax filings. Business tax debt can also be covered through this program, as it relates to both individuals as well as sole proprietors and LLCs.

Looking to go over your taxes soon and need some extra guidance? Consider hiring a tax professional or using tax preparation software, like some of the options below.

What if you’re denied a hardship status?

Maybe you weren’t able to prove hardship or the IRS found that having all your money in cryptocurrency is not the best way to claim hardship. Either way, there is no guarantee that you’ll receive the hardship status in the end. If not, here are some additional options.

IRS payment plan

The IRS offers payment plans where tax-delinquent individuals can pay off delinquent tax debts over time using affordable monthly payments. This is one of the best ways to avoid paying a lien or levy while chipping away at the debt.

Although the collections might stop with a payment plan, the interest and penalties do not. Expect to continue paying both interest and penalties on the outstanding sum you still have throughout the lifespan of the plan.

Offer in compromise

An offer in compromise is the closest thing that the IRS offers to full-on tax forgiveness. It’s a settlement between the taxpayer and the IRS in which they “compromise” on the amount of tax debt that the taxpayer owes. The taxpayer usually proposes one amount, and the government either accepts or rejects the offer.

Tax relief firms

If you don’t qualify for an IRS hardship status and you owe more than $10,000 in back taxes, you may instead be able to find some relief with the help of a tax relief firm. Though you’ll need to pay a fee, tax relief companies can negotiate with the IRS to help reduce or eliminate your tax debts.

While this can sound like a great offer, be aware that tax relief companies can charge thousands of dollars in fees. This is why many tax relief firms have a minimum tax debt you must meet in order to work with them. To see if you qualify, or to find the best tax relief firm for you, take a look at some of the companies below.

FAQs

What is covered under the IRS hardship program?

The IRS hardship program covers people from paying a tax levy that is greater than their basic necessities and living expenses.

Can you qualify for an IRS hardship program if you have a tax lien?

No, the IRS has a hardship program to help people who want to avoid having a lien on their property if they are not able to pay taxes. If you already have a lien, the IRS can assist you with a payment plan to pay your taxes.

How do I write a hardship letter to the IRS?

You basically explain what is happening and why you can’t pay your tax bills. Make sure you clearly outline why you’re having difficulty paying your taxes but don’t lie about your situation.

What would be considered proof of hardship?

No income and excessive out-of-pocket medical expenses would be considered proof of hardship, along with high living expenses.

How long does the IRS hardship program last? 

The IRS hardship status and program last up to 10 years. However, it should really last only until you fall out of financial hardship and can afford to pay back the taxes.

Key Takeaways

  • The IRS hardship program is a government program that allows taxpayers to defer taxes they owe by changing their tax status to “Currently Not Collectible.”
  • The taxpayer must prove that their basic living expenses exceed the amount of their tax debt and thus will cause excessive hardship.
  • To apply for the program, you must file Form 433, attach a hardship letter, and submit all documents to the IRS with subsequent documentation.
  • If you fail to receive hardship status but want to eliminate or solve your tax debt, a payment plan, settlement, or tax relief firm are three further options you can choose from.
View Article Sources
  1. Offer in Compromise — IRS
  2. Publication 519 (2021), U.S. Tax Guide for Aliens — IRS
  3. Owe The IRS? 10 Things To Know — SuperMoney
  4. How To Settle IRS Tax Debt: All Available Options — SuperMoney
  5. Do Tax Relief Companies Work? Or Is It A Scam? — SuperMoney
  6. Tax Debt Relief: The IRS’s Best Kept Secret to Pay Off Taxes — SuperMoney
  7. Does the IRS Offer One-Time Forgiveness? — SuperMoney
  8. IRS Debt Forgiveness Program: Here’s How To Apply — SuperMoney
  9. What Is The IRS Debt Relief Program and How Can You Qualify? — SuperMoney
  10. Asset Seizure: The Complete Guide — SuperMoney
  11. Ultimate Guide to IRS Fresh Start Initiative Programs — SuperMoney
  12. 2021 Tax Relief Industry Study — SuperMoney
  13. Tax Hardship Center — SuperMoney