IRS tax debt feels like a huge weight, and with penalties and interest adding up, that weight feels even heavier over time. But no matter how much your tax debt is, you have several tax resolution options to be worry-free from the IRS.
Here are 10 ways to settle tax debt or reduce tax debt depending on your specific tax issue.
1. Apply for IRS Fresh Start Program
The IRS Fresh Start Program is a tax resolution initiative that began in 2011-2012 with changes to IRS lien-filing criteria and lien withdrawal requests, expansion of streamlined payment plans, and more attractive Offer in Compromise calculations to help struggling taxpayers settle tax debt.
Once you are approved for a Fresh Start, the IRS will setup a repayment plan based on your current and expected future income. If you have been subject to tax liens or wage garnishment because of your tax debt, you can have both removed by making your agreed-upon payments to the IRS to settle tax debt.
2. Submit Offer in Compromise (OIC)
If you are experiencing a financial hardship and can’t pay the full amount you owe the IRS and you want to settle tax debt for less, you might qualify for an Offer in Compromise (often referred to as OIC).
Under an OIC agreement, the IRS accepts less than what you owe to reduce and settle tax debt. You must have filed all tax returns and made required estimated tax payments to start the Offer in Compromise process.
3. Set Up IRS Payment Plan or Installment Agreement (IA)
With an IRS payment plan or installment agreement, you make affordable monthly payments to settle tax debt instead of paying what you owe the IRS in one lump sum. Your monthly IRS payment is based on what you can afford, as determined by your income and other debts.
The IRS offers both short-term payment plans and long-term payment plans (installment agreements), and monthly payments can be made by from your bank account; by debit or credit card, check, or money order; or by phone using EFTPS (Electronic Federal Tax Payment System). For both short and long-term IRS payment plans, you will continue to accrue penalties and interest until your tax debt is paid in full.
4. Request Currently Not Collectible Status (CNC)
If you are suffering from a temporary financial setback that makes it impossible to pay any amount of your IRS tax debt at the current time, you can request that the IRS place your debt in CNC status.
While your tax debt is currently not collectible, it will continue to accrue interest, but the IRS will temporality stop all collection efforts to settle tax debt, including phone calls, federal tax liens, and wage garnishment.
5. Request IRS First Time Penalty Abatement
The IRS offers first time penalty abatement (FTA) to taxpayers who have a clean record of filing and paying taxes on time but who slip up one time and either file late or pay late.
To qualify for IRS penalty abatement and reduce tax debt, (1) you cannot have penalties in the last three tax years, (2) you filed all tax returns or received an extension, and (3) you paid or made arrangements to pay your unpaid taxes in full. Each of these IRS first time abatement criteria must be true before the IRS will abate your penalty.
When you are eligible for first time penalty abatement, the IRS will also reduce interest charged on your penalty.
6. Request IRS Reasonable Cause Penalty Relief
If you can prove to the IRS that your failure to file or pay taxes on time was due to a reasonable cause, such as a fire, casualty, natural disaster, inability to obtain records, or death or serious illness in your immediate household, the IRS may reduce tax debt by removing penalties or decreasing the penalty amount on your unpaid taxes.
Like first time penalty abatement, if you qualify for reasonable cause penalty relief, your penalty interest will also be reduced.
7. Request Innocent Spouse Relief or Injured Spouse Allocation
Innocent spouse relief will settle tax debt by relieving you of responsibility for unpaid taxes resulting from your spouse or former spouse’s omitting or improperly reporting items on your tax return, along with any penalties and interest that have accrued because of your spouse’s tax debt.
Injured spouse allocation helps reduce or settle tax debt and you are eligible to receive some or all of your tax refund that was seized to pay for a financial obligation of your spouse or former spouse, such as unpaid child support.
8. Request IRS Wage Garnishment Release
If the IRS has garnished your wages to settle tax debt, you can request the wage garnishment be released if you meet your tax obligation to the IRS (i.e., pay your taxes or set up installment agreement), or if you can demonstrate that the IRS garnishment is causing severe financial hardship.
Read more: “Can the IRS Take Money from My Paycheck?”
9. Request IRS Bank Account Levy Release
Bank account levies are another IRS collection effort to settle tax debt. Like wage garnishment, bank account levies can be released when you settle tax debt, set up an IRS payment plan, or prove the bank levy is causing a financial hardship and you cannot meet basic living needs.
Read more: “IRS Tax Lien vs Tax Levy”
10. Pay Your Tax Debt in One Lump Sum
The simplest way to settle tax debt and get the IRS off your back, but not always easiest or financially possible, is to pay your tax debt in one lump sum. If this is not feasible, you can try to get the IRS to settle for less with an Offer in Compromise (OIC), or you can set up an IRS installment payment plan or get on a Currently Non Collectible Status.
Helping you figure out what is best when it comes to IRS tax relief is all we do here at Wiztax. Schedule a free call now.
Call us today at (866) 568-4593 to learn more about how we can help, or start here to take our free online evaluation.
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