Posted by Income Taxes and Bookkeeping LLC

Financial Hardship: Do You Qualify?

Financial Hardship: Do You Qualify?

Only people that are on the moon or another planet will be alien to the recent Covid-19 pandemic. Almost all economies of the world have been severely hit with various job losses and recessions. However, financial hardship is one of the few tips that can help cushion the effect of the pandemic. 

Understanding Financial Hardship 

If someone faces severe financial distress after paying tax, such a person can be classified as having financial hardship. Part of the tax law sheds light on the currently not Collectible Status of part 5, Chapter 15, and section 1 of the IRS manual. This section helps explain how to qualify for financial hardship.

Payment of taxes will make life horrible for the taxpayer in which they will not be able to meet the right and necessary living expenses. 

Based on the above, we need a definition of what “necessary living expense” entails. According to Uncle Sam’s guidelines, there are four groups of living expenses:

  • Transportation

  • Daily needs, food, clothing, and other care products

  • Utilities and housing

  • Out of pocket healthcare expenses

Also, one's annual income will be below $84,000, and one will have little to nothing left after the payment of these expenses. 

A taxpayer can enjoy the Currently Not Collectible status for up to 10 years. The clause, however, is that both penalties and interest will be piling up despite the status. The only bright side is that Uncle Sam will not use any aggressive collection status.

How to Prove Hardship with Uncle Sam

One will have to tender some paperwork alongside information on the finances. Examples of such are:

  • The most recent copies of tax forms

  • Average expenses and income for three months

  • Statement and income of spending for the past three months

  • Documents showing all your assets alongside the worth

  • Collection Information Statement Form 433B for qualifying businesses – corporations 

  • Collection Information Statement Form 433A/433F for individuals or the self-employed

  • If applicable – proof of disability.

Qualifying for Hardship 

There are some criteria that Uncle Sam uses to determine the qualification of taxpayers for the hardship status. You might qualify if you have just enough money to take care of yourself and your home. 

Uncle Sam will also examine your financial status removing the sum of your allowable living expenses from your gross income (monthly).

With this calculation, you will have the net disposable income, which will be the status for determining your tax. 

Who Qualifies for the Currently Not Collectible Status?

  • Individuals

  • Sole proprietors

  • A partnership with liable general partners

CNC status is not allowed for giant corporations as the aim is to support individual taxpayers and small business owners.

Uncle Sam will review the financial status and other essential info for everyone who qualifies for CNC to ensure that you still fit the status. Any increase in income which reveals that you can pay will make a taxpayer lose the status.

The IRS treats your financial status differently every year, which removes automatic qualification for taxpayers. Even though one might try to qualify, the requirement gets pretty stringent.

Even if you are not paying your taxes, early filing is still essential to avoid penalties. Not filing comes with pretty severe punishment. Besides, try to pay off any new tax since it does not affect your hardship status.

Other Payments Plans 

Some people might not be lucky to qualify for the currently not collectible status even though paying their tax does have severe difficulty. Such people might attempt other payment plans.

There are plans provided by Uncle Sam with which you can pay the tax over an extended period. Here are the requirements for such plans:

  • Taxpayers that have balances of more than $25,000 need to pay by Direct Debit.

  • Businesses that have a balance above $410,000 can pay by Direct Debit.

  • Interest and penalties keep incresing.

  • There is a user fee for every new plan.

If you are eligible for a short-term payment, there might not be a need to pay the user fee. There is an online application for one to make these payments, but contact INCOME TAXES & BOOKKEEPING, LLC. for the best help available.



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