All about IRS Hardship
In some cases, individuals can’t financially afford to pay the IRS for debt. Instead of carrying the exorbitant weight of tax debt for years, the IRS does offer some outlets for relief, exemption, and forgiveness. IRS hardship can be complex to navigate. Here are some answers to common questions you may have and information for finding professional help to make the process easier.
What is IRS Hardship?
One of the ways taxpayers who are going through immediate financial distress can get tax relief is by filing for hardship. IRS Hardship rules allow only an IRS official or a tax collector can file IRS form 53, which declares a taxpayer as “currently not collectible.” While filing for hardship will not indefinitely remove you from the weight of a tax burden, it can give you enough time to pool your resources and get back on your feet. The filing is evaluated on a case-by-case basis and can stall debt collection by anywhere from six months to a couple of years.
How Does Someone Qualify for Hardship?
As an individual or business, you’ll also need to fill out IRS form 433-A or B in detail. The individual forms are the basis for qualification for this status and can help you prove your case to the IRS.
The forms will look at numerous factors that may influence your ability to pay the debt. Your monthly bills, all sources of income, financial information, legal background, previous tax returns, employment information, and personal identification information may all be required as part of your filing.
Through the information you file, the IRS will evaluate your ability to provide for yourself and to meet your obligations, keep your job, and get necessary medical assistance while paying off debt. If they decide that you can do all that successfully, even if your budget will be ridiculously tight, they can decide to reject your application and require you to pay back the debt. If, however, your budget does not allow for the extra payments, you may qualify for hardship and have your debts stalled for a period of time.
Individuals may qualify for hardship only in extreme circumstances, so you may want to evaluate your situation carefully before choosing to file as uncollectible. You’ll want to contact a tax professional to help you develop all the supporting information necessary to prove that you qualify for hardship. Failing to include the required information or failing to provide it in a way that supports your case may result in your request being denied.
Tapping into Retirement Plans
If you do qualify for hardship with the IRS, you may be eligible to collect early distributions from your retirement plan. The 401k, 403b, and 457b retirement plans all provide a means for individuals to collect distributions. In times of dire hardship, the distribution income may be used to cover necessary expenses such as medical bills and funerary costs. What you are allowed to use the assets for will be carefully allocated and monitored but can help individuals pay taxes, debts, and other necessary expenses during a time of financial crisis.
IRS Hardship Exemption and Health Insurance
If you file for hardship with the IRS, you may also be exempt from paying for medical coverage under the Affordable Care Act. Each year, your status with the ACA is calculated along with your tax return. Keeping your hardship status information available and understanding your exemption status may help you determine your tax responsibility in coming years. If you are not sure about how your hardship status will affect your medical coverage and upcoming tax return, you may want to speak with a tax professional who can help you understand your situation.
When to Contact a Professional for Help
Going through financial hardship can feel overwhelming. You may need to make certain filings and update your status with the IRS to ensure that you are not held liable for debts that you can’t foreseeably pay. Contact a tax professional at the first sign of financial insecurity that could lead to insolvency. There may be ways that you can avoid becoming insolvent or notify the IRS and other agencies of your situation to avoid collection actions and penalties.
A tax resolution expert can help you fill out paperwork, negotiate terms with the IRS, and diminish your overall tax liability. Tax professionals, such as resolution experts who are enrolled IRS agents and who understand tax code, can help you develop a personalized plan to target your tax debt with a number of strategies. For more information about IRS hardship or reducing tax debt, contact the tax professionals at Long Island Tax Resolution Services.