IRS Tax Debt is one of the most common debts in the US, though not one that is widely talked about. Many people right now are sitting at home and seeing commercials for IRS Tax Debt help and wondering if they can do it on their own. The answer to that is yes, you absolutely can.
It doesn’t matter the amount you owe, you can resolve your tax debt on your own. It is just a matter of how much time and work do you want to put in. If you are willing to put in the time, here are some options available to you.
If you owe the IRS less than 50,000 it is a simple phone call. You just have to do the math first. There is a mathematical equation the IRS uses to determine your monthly payment. Which is: The amount of the debt you owe dived by 60 months + 25.00 (to account for interest) = Your monthly payment.
For example: 35,000 owed / 60 + 25.00 = 608.33 as a monthly payment.
(I always use 25.00 to account for interest. It is not a requirement by the IRS, but if you didn’t add anything in there, the payment amount would be too low and the IRS would reject it.)
This is called their Streamlined Installment agreement. But, what if you can’t afford that? Well that’s a little more work.
If you can’t afford what a streamlined payment would be then you would need to submit a financial. You would fill out the IRS form 433 and submit it with your 3 most recent pay-stubs, your 3 most recent bank statements, and any other supporting documentation for the bills you list. The IRS uses what it called national standards for monthly bills to compare against the bills you have. These standards are all based on where you live and the number of people living in your household.
The financial works this way: Average monthly income – Average monthly bills = MDI (monthly disposable income) which becomes your payment.
For example, say you’re a Construction worker. Your Monthly wages are 2,000. Your monthly bills are 1,800. So, 2,000-1,800= 200.00. This would be your payment.
Now you’re saying, what if I have nothing left over! Well that is what the IRS calls, Currently Not Collectible. If you truly have nothing left over, and maybe you’re even in the negative, the IRS will place you in this status. It means that you do not need to make a monthly payment and the IRS will not take any collection action against you. Interest does still accrue in this status. The IRS does review this from time to time. They look at wages that are reported for you and if there is no significant change, you will remain in this status. If there is, they may request updated information from you from time to time.
Ok, Ok, but how about all these settlement things I hear about? Can’t they just settle what I owe so I don’t have to pay all of it back? That may be an option, but it is also a lot more work, and a lot more documentation that you must provide. If you are asking the IRS to settle your debt for less than you owe, they are going to go over all your information with a fine-tooth comb.
If you want to try and go this route, this is where I tell you contact a professional. There are too many rules, and too many areas that you could miss on your own. Though I’m going to tell you to contact a CPA or an Enrolled Agent that is local to you, and that has plenty of experience. Because the truth of the matter is that no, the IRS does not really settle that many debts. On average about 60% of offers are rejected. So you need a knowledgeable person on your side.
These are not all the options available to you. This is merely a quick look at to what steps you can take to resolve your issue. To get the forms I mentioned here, or to check what the national standards are for your area you can do so on the IRS website at irs.gov.