Getting Relief from Tax Debt as a Low-Income Taxpayer



Getting Relief from Tax Debt as a Low-Income Taxpayer

If you’re struggling with back taxes and tax debt as a low-income taxpayer, you’re not alone. Lots of folks find themselves in this situation due to job loss, medical bills, or just plain bad luck. The good news is there are options to find tax relief even if you don’t have much income.

First off, don’t panic. Take a deep breath. The IRS isn’t necessarily out to get you and they don’t want to see you end up on the street. They’d much rather work out a solution so you can pay what you owe over time. Here’s a quick look at some of the main options for tax relief if you’re low income:

Payment Plans

One of the easiest options is to set up a payment plan directly with the IRS. This allows you to pay off your tax debt in monthly installments over several years. The IRS may approve plans for as long as 72 months. To qualify, you’ll need to fill out Form 9465 and propose a monthly payment amount. The IRS will likely approve it as long as the amount seems reasonable based on your income and expenses.

Offer in Compromise

With an offer in compromise, you can settle your tax debt for less than the full amount owed. This can really lower your tax burden, but you have to meet strict eligibility criteria. Your offer amount will depend on your income, assets, and expenses. The whole process can take up to 2 years to get approved. You’ll need to submit Form 656 along with supporting documents.

Non-Collectible Status

If you truly can’t pay anything right now, you may be able to get into “non-collectible” status. This puts a hold on IRS collection efforts. To qualify, you’ll need to show you have very limited income and assets. Interest and penalties will continue accruing during this time. After 10 years tax debts expire. Getting non-collectible status doesn’t make the debt go away, but it gives you a break.

Penalty Abatement

Penalties really add up when you have tax debt. You can request an abatement or removal of penalties due to reasonable cause. For instance, if you were hospitalized and couldn’t file on time. Or you made a good faith effort but still underpaid. Submit Form 843 to request abatement.

Low Income Taxpayer Clinics

Low Income Taxpayer Clinics provide free or low cost help resolving tax disputes. LITCs have tax attorneys and enrolled agents to assist you. They can help with audits, appeals, payment plans, and more. To qualify, your income must be below 250% of poverty level. LITCs are a great resource if you can’t afford other representation.

Avoid Tax Relief Scams

Beware of tax relief companies promising to eliminate your tax debt. They often make big claims but fail to deliver. Some don’t even send paperwork to the IRS after taking your money. Resolve your tax issues directly with the IRS or get help from reputable non-profits like LITCs.

Takeaway Tips

  • Don’t panic – the IRS wants to help you find a solution
  • Payment plans let you pay over time in installments
  • Offers in compromise can settle debt for less than owed
  • Non-collectible status pauses IRS collection efforts
  • Abatement can remove penalties for reasonable cause
  • LITCs provide free/low cost help for low income taxpayers
  • Avoid scams – work directly with the IRS for relief

Dealing with tax debt is tough, but options exist if you’re low income. Be proactive and explore payment plans, compromise offers, penalty relief, and assistance programs. With the right help, you can find a way forward and get relief from back taxes.

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