In 2018, over 14 million Americans owed over $131 billion in back taxes, penalties, and interest according to U.S. Internal Revenue Service data. It’s not easy for everyone to simply pay off their federal debt, which is why it becomes necessary to explore other options. You can find out how to relieve your tax debt by searching online.
There are different methods of debt relief that require various prerequisites, costs, and conditions. Start an online search to learn about which option is best for your financial situation.
Here are your options for tax debt relief.
Get on an IRS Payment Plan
The IRS can offer payment plans to individuals with tax debt. It’s a way for you to make scheduled payments to wean down your debt until you settle what you owe. However, it doesn’t get you out of interest and penalty fees for late payment.
You can choose either a short- or long-term payment plan. Short-term plans are 120 days or less, and they’re designed for those with less than $100,000 in combined tax, penalties, and interest. Long-term plans are offered at a minimum of 120 days for people with $50,000 or less money owed. There is also a processing fee for payments made with a debit or credit card.
Stipulations differ between short and long-term payment plans. For instance, it costs $0 to apply for a short-term plan and anywhere from $31 to $225 to apply for a long-term plan. That fee can potentially be lowered to $43 for low-income applicants if their adjusted gross income is at or below 250 percent of the federal poverty level.
“Currently Not Collectible” Status
If you owe tax debt and can’t pay, consider getting a “Currently Not Collectible” (CNC) status from the IRS. This is for people who don’t have any leftover money at the end of the month after paying for essential living expenses. This status allows you to defer making payments to the IRS on past-due income taxes.
A CNC status does not erase your tax debt. Rather, this is a temporary solution for people struggling to pay for both living expenses and their debt. It can give you some time to get your finances in order without worrying about collections coming to your day at any given moment.
Any future tax refunds will be applied to your outstanding balance. A CNC is also a label that can show up on your credit report, which makes creditors aware that you owe money to the IRS.
Settle Your Back Taxes
Another option in relieving your debt is by settling your taxes. This is also known as an offer in compromise, which allows you to settle your tax debt for less than the full amount you owe. The IRS will decide whether or not you qualify based on circumstances that include:
- Ability to pay
- Income
- Expenses
- Asset equity
People who can’t pay their full tax liability or risk creating a financial hardship by doing so can look into tax settling, though it can be difficult to get approved. The IRS will ideally approve you when an amount offered represents the most they can expect to collect within a reasonable time period.
The IRS says that settling your debt should be considered after all other tax relief options have been explored. This makes sense given how fewer than half of requests are accepted.
Learn More About Tax Debt Relief Online
It’s important to do your research before pursuing a form of tax relief. Payment plans, CNC statuses, and offers in compromise all come with its own qualifications and costs. Carefully look into each option to find out whether you qualify and if it will benefit your financial situation.
Those looking for more help related to tax relief can also consult a tax debt relief service. These businesses may intervene to relieve liens, bank account seizures, or wage garnishments. But you have to make sure you’re consulting with a qualified debt reliever.
A good tax settlement service should:
- Learn why the customer has fallen behind or failed to file
- Obtain their customer’s proper financial information
- Provide customers with a realistic assessment
- Match the taxpayer’s situation with the best available IRS program
- Charge a reasonable fixed fee
Remember that scams and illegitimate companies exist in any industry, including tax relief. Don’t continue business with a tax debt relief company if they demand payments before they have performed a service, make upfront promises or pledges to solve customer tax debt, fail to ask why their client is behind with the IRS, or contact you directly through letters and email.
People with tax debt have options. Search online to learn more about the different tax relief methods and how to hire a reputable tax settlement service.