The Americans who owe taxes to the IRS can apply for tax debt forgiveness to settle their tax for less than the full amount. If you are experiencing financial hardships or bankruptcy or can’t pay anything now, you can look into the IRS debt forgiveness programs.
IRS Debt Forgiveness
According to the IRS report, individuals earning more than $1 million per year owe more than $250,000 in tax debt to the IRS, so if you owe taxes to the IRS then you are not alone. The IRS offers multiple tax debt relief options to taxpayers to help them resolve tax bills if they qualify for the tax debt relief.
Taxpayers can utilize debt forgiveness to repay their debts effectively, find relief from tax penalties, eliminate interest charges applicable to their unresolved tax bills, restore their credit scores, and don’t have to pay the consequences of not paying taxes on time. IRS offers many options based on the taxpayer’s conditions, such as:
- When you pay only part of your debt, avoid tax penalties and additional interest charges.
- When you can’t pay anything at all due to your financial condition, you can ask the IRS to delay your tax collection for the time being, that is, currently not collectible status.
- When you are bankrupt, you can inform the IRS about your bankruptcy with full details and temporarily stop your tax collection.
The program is intended to provide financial relief to taxpayers who can’t pay taxes due to unexpected events and stay stress-free about the debt they owe to the IRS.
IRS Debt Relief – When you can pay part of your Tax Debt
Taxpayers who can pay part of their tax balance can utilize the following two options to resolve their tax bills:
- Payment Plan: The ITS offers online/installment payment agreement plans that let you pay a part of your tax balance, such as a short-term (180 days or less) and a long-term payment plan(monthly installment). The taxpayers qualify for the respective payment plan based on their eligibility to apply for the plans.
- Offer in Compromise (OIC): The IRS debt settlement options OIC allows the taxpayers to pay less amount they owe than the full debt if they can’t pay taxes because it can create financial hardship for them. The OIC program is popularly known as the Fresh Start Program as initially, this used to be the program name. However, not all taxpayers qualify for the OIC as it considers various factors, such as the person’s ability to pay, expenses, income, and asset equity.
Eligibility for the Payment Plan and Offer in Compromise
Taxpayers who are facing financial hardships in paying their full tax balances can avail of the Payment plans or OIC when they qualify them based on the following eligibility requirements:
For Payment Plans:
- You may apply for the long-term payment plan when you owe taxes of around $50,000 or less combining penalties, interest, and full tax balance and you have filed all the previous tax returns. The general repayment period for the installment tax debt payment is 72 months, so you can gradually pay the taxes you owe.
- You can apply for the short-term payment plan when you owe taxes to the IRS that are less than $100,000 including penalties, tax you owe, and interest charges.
For Offer in Compromise:
- When you have a valid extension for the current tax year (if you are applying for the current year’s returns), taxpayers who have applied for the extension can select the OIC program to pay their taxes.
- You have filed all the required tax returns and processed the estimated payments.
- You are an employer and already made the tax deposits for the past two quarters and for the year you are applying for the OIC.
- You aren’t involved in any ongoing bankruptcy case.
What’s the fee to apply for the IRS Debt relief program to pay a part of your balance?
The taxpayers who wish to apply for the payment plan or OIC based on their eligibility should understand that they have to pay the following non-refundable fee to take advantage of the program:
- For Payment Plan:
- Under the payment plan option, the taxpayers have to pay no fee for pay now and short-term plan to set up the plan, whereas for the long-term plan the taxpayers have to pay the following set up fee:
- For payment through withdrawals, a $22 setup fee is applicable with the penalties and interest until the taxes are fully paid.
- For monthly non-direct debit, a $69 setup fee is applicable, where $43 can be refunded to low-income individuals based on their conditions with paying the penalties and interest until the balance is paid fully.
- For Offer in Compromises:
- Taxpayers will have to pay a non-refundable fee of $205 for each Form 656 to set up the OIC.
How to apply for the Payment Agreement Plans?
Taxpayers with extension can apply for the payment plans online on the official IRS website with their account ID and photo identification. If you are applying for the direct debit payment plan, you will need your account numbers and bank routing. You will also need the IRS notice which shows your due tax balance.
You can apply for the payment plan between Monday to Friday from 6 AM to 12:30 AM, on Saturday from 6 AM to 9 PM, and on Sunday between 6 PM to 2 AM.
How to apply for an Offer in Compromise?
Taxpayers who wish to avail of the offer in compromise program to get relief from the IRS tax debt should submit the following application:
- Form 433-A (individuals) or 433-B (businesses)
- Form 656s for individuals and business tax debt
The taxpayers need to submit the form with the nonrefundable fee and select the payment option like lump sum payment or periodic payment. The authority will review your payment option and application and on the approval you can pay the tax debt monthly.
Taxpayers who owe taxes to the IRS can get some tax debt relief through the above programs when they meet the qualifications for any of the programs. However, there is no guarantee on how much the payment will IRS settle for as it depends on taxpayers’ circumstances.