Did you suffer a medical emergency which prevented you from filing your taxes? If so, penalties and interest are likely contributing to a growing pool of tax debt. However, there may be a way out. The IRS offers tax debt relief for medical reasons. In 2016, taxpayers who failed to pay their taxes were assigned $4.9 billion in penalties — but about $1.1 billion of them were abated. That means that the IRS forgave about 22% of all tax penalties.
Hoping to get your tax penalties withdrawn in the wake of a medical emergency? Here’s what you should know about tax debt relief for medical reasons, and how to get expert help if you need it.
How does tax relief for medical reasons work?
The IRS wants to collect the taxes that you owe them. However, if you did your best to meet federal obligations and only failed to do so because of circumstances beyond your control, you can apply for penalty relief.
You may qualify for penalty relief if any of the following circumstances apply to you or your immediate family (i.e., parents, spouse, siblings, children, and grandparents):
- Serious illness.
- Unavoidable absence.
Refer to Section 18.104.22.168.2.2.1 (11-25-2011) of the IRS tax code to read the laws pertaining to penalty relief due to these causes. If you have considerable tax debt (more than $5,000) consider hiring a tax relief company.
How do you qualify for penalty relief?
To determine whether you qualify for penalty relief, the IRS will analyze your situation. To do so, it will collect information including, but not limited to:
- What happened?
- When did it happen?
- In the case of illness, what was the severity?
- Who was affected and what is your relationship to the person?
- How did the situation prevent you from filing or paying your taxes, and did it prevent other day-to-day activities?
- If the situation changed, have you taken steps to file or pay your taxes?
In the case of illness or incapacitation, you must also provide supporting documentation with start- and end-dates from a physician, hospital, or court.
How can you file for penalty relief?
You can file for penalty relief by calling the IRS or by mailing in a signed letter. If you send a letter, it must answer the above questions, and and you should mail it to the address on your IRS notice. We recommend the letter as it allows you to document your full case. If you call, the IRS agent will be in charge of the documentation.
What penalties are eligible for relief?
Eligible penalties include those for failing to:
- File a tax return (FTF).
- Pay taxes on time (FTP).
- Deposit taxes as required (FTD).
Other penalties may also qualify for relief, but these will be determined on a case-by-case basis.
What if your penalty relief request is denied?
If you made your case to the IRS and receive a Notice of Disallowance which states they denied your request, you can file an appeal within the given timeframe. The IRS has an online Penalty Appeal Self-Help Tool which can help. However, you may get better results with a tax expert with experience in tax debt issues.
What other situations are eligible for tax relief?
Death, serious illness, and unavoidable absence aren’t the only events that can qualify a taxpayer for tax relief. The IRS may also grant relief in the following circumstances:
- Natural disaster.
- Other disturbances.
- Inability to obtain the necessary records.
- A mistake.
- Erroneous reliance or advice.
- Ignorance of the law.
In these circumstances, the IRS grants relief on a case-by-case basis. Because tax relief is not a guarantee in these situations, you may want to hire a tax relief firm to help you build a more solid case.
You can view reputable and recommended tax relief firms below:
What is First Time Abatement (FTA)?
FTA is an administrative waiver of FTF, FTP, and FTD tax penalties. It is granted when a taxpayer is subject to one or more penalties for the first time on a single tax return. To qualify, you must also meet additional criteria, like being up to date on your tax filings and having paid or arranged to pay any taxes owed.
Should you hire a tax relief firm?
A tax relief firm can help you to reduce the amount of tax that you owe. Further, they help to stop collection activities such as garnishing wages or seizing assets. Typically, the process starts with a free consultation. Afterwards, the tax relief firm provides their recommendations and fees.
If you decide to hire a firm, you will authorize them to act on your behalf with the IRS. In the case of taxes owed and tax penalties, they can do your bidding to reduce the amount you have to pay.
It can be beneficial to have a tax expert on your side which knows all of the laws and programs.
Should you hire a tax relief firm? Consider the pros and cons.
- Reduce your tax burden.
- Prevent collection actions.
- Have a tax expert on your side.
- Reduce the pressure on you.
- Results aren’t guaranteed.
- You will have to pay for the services.
To increase your chances of reducing your debt, it’s important to choose the right company. Be sure to select a tax relief firm that is reputable and positively reviewed by its users.
Tax Debt Relief for Medical Reasons – Ready to get started?
Accumulating tax penalties and ballooning tax debt is the last thing you want after a medical disaster or family emergency. Luckily, tax relief can bring your debt back under your control.
Not sure which tax debt relief firm to hire? SuperMoney has you covered. Compare reputable firms below, read reviews from real customers, and find the best fit for your situation.
Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar, Interest.com, Commonbond, Bankrate, NextAdvisor, Guardian, Personalloans.org and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.