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Who qualifies for the IRS hardship program?

Tax document and cash payments not requiring tax payment
The IRS hardship program could provide necessary relief from your delinquent tax debt, but you'll need to qualify first. DOUGLAS SACHA/Getty Images

Dealing with delinquent tax debt may be one of the most stressful financial challenges a person can encounter. After all, between the mounting penalties, the Internal Revenue Service (IRS) notices and the aggressive collection actions, the repercussions that come with late tax debt can take a severe toll on your financial life — and your stress levels. But if you're dealing with this type of issue, what you may not realize is that the IRS offers several programs designed to help taxpayers who are genuinely struggling to meet their tax obligations.

One such initiative is the IRS hardship program, officially known as Currently Not Collectible (CNC) status. This program provides temporary relief for taxpayers who are experiencing significant financial difficulties by pausing collection activities until their financial situation improves. While the tax debt doesn't disappear, the program offers breathing room for those who genuinely cannot pay their tax bills without compromising their ability to afford basic living expenses.

Each year, a significant number of taxpayers who are facing genuine financial hardships will qualify for CNC status, allowing them to temporarily pause tax payments while maintaining basic living expenses — and if you're struggling with delinquent tax debt, it could make sense to consider this option. But if you're going to use this program, it's important to understand who may qualify.

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Who qualifies for the IRS hardship program?

The IRS evaluates eligibility for the hardship program on a case-by-case basis, focusing primarily on the taxpayer's ability to pay their back taxes while maintaining basic living expenses. To qualify for CNC status, taxpayers generally must demonstrate that paying their tax debt would create significant financial hardship. During this process, the IRS considers several key factors, including:

  • Income and necessary living expenses: The IRS compares your income against allowable living expenses, which include housing, utilities, food, clothing, transportation and healthcare. If your income barely covers or falls short of these basic expenses, you may qualify for hardship status.
  • Assets and equity: The IRS will examine your assets, including bank accounts, investments and property. Having significant assets or equity might disqualify you from the program, as the IRS may expect you to liquidate these assets to pay your tax debt.
  • Employment status: Recent job loss, disability, or other circumstances affecting your earning capacity are considered when evaluating hardship status.
  • Medical or unexpected expenses: Taxpayers facing significant medical expenses or other unforeseen costs may qualify for CNC status. For instance, if you have incurred high medical bills that leave little or no disposable income for tax payments, you may be eligible for hardship relief.
  • Existing debts: The IRS also evaluates other financial obligations, such as car loans and child support, to determine if these commitments make it impossible to pay taxes without jeopardizing basic living standards.

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How to decide if the IRS hardship program is right for you

The IRS hardship program can provide crucial relief when you're experiencing genuine financial difficulties, but it's important to understand that it's not a permanent solution. While in CNC status:

  • The IRS will temporarily stop collection activities
  • Interest and penalties continue to accrue on the tax debt
  • The IRS reviews your financial situation periodically
  • Tax refunds will be applied to your outstanding debt
  • The 10-year statute of limitations on tax debt collection continues to run

As a result, this program may not be the right fit for every taxpayer. Before applying for the IRS hardship program, it can help to carefully evaluate your situation against these considerations:

  • Your financial assessment: Calculate your monthly income and expenses using the IRS's allowable expense guidelines. If your basic living expenses consume most or all of your income, the hardship program might be appropriate. However, if you have disposable income after covering essential expenses, you may want to consider other options like an installment agreement.
  • The alternative solutions: Compare the hardship program with your other IRS relief options. For example, an Offer in Compromise might be better if you can afford to pay a portion of your debt, while an installment agreement could work if you can make small monthly payments. 
  • The long-term implications: While the hardship program stops collections, it doesn't stop interest and penalties from accruing. If your financial hardship is likely temporary, you might be better served by a short-term payment plan or temporarily delayed collection while you get back on your feet.
  • Your current life circumstances: Evaluate whether your financial hardship is truly temporary or more permanent. If you're facing long-term disability or other persistent challenges, you might need to combine the hardship program with other strategies.

The bottom line

If you're struggling with tax debt, the IRS hardship program can provide essential breathing room to stabilize your financial situation. However, it's crucial to view this as a temporary measure while working toward a long-term solution. Before enrolling, you may also want to take steps to determine whether another solution would be a better fit — especially if your hardship is a more permanent issue, as CNC status has its limitations in these situations. If you're still unsure of whether the IRS hardship program makes sense, it may help to consult with a tax relief expert who can help evaluate whether the hardship program is the best option for your situation or whether other tax relief programs might be more beneficial.

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