The IRS allows individuals who owe back taxes to set up payment plans or submit an Offer in Compromise to pay off tax debt. In order to determine how much a delinquent taxpayer should be required to pay, the IRS uses Collection Financial Standards. These standards help the IRS determine a taxpayer’s necessary monthly expenses to provide for themselves and their family.
Based on these expenses and the taxpayer’s income, the IRS can estimate how much is left over to be paid toward back taxes.
What Are IRS Collection Financial Standards?
IRS Collection Financial Standards use a taxpayer’s family size and geographic location to estimate how much they must spend each month on food, clothing, healthcare, and other items in order to provide themselves and their families with safe, healthy and comfortable living conditions. The IRS uses these national standards to set the amount that a delinquent taxpayer must contribute each month toward their back taxes.
Did the IRS Increase National Standards and Allowable Living Expenses for 2023?
The IRS increased its 2023 National Standards by 7.1% for one-person households; 5.6% for three-person households; and 4.9% for four-person households. Recognizing the strain that rising prices are putting on household budgets, the IRS raised its Collection Financial Standards for these groups. Most of the increases are for food, housekeeping, and miscellaneous expenses in response to historically high inflation.
Note that IRS clothing allowances for 2023 were reduced or didn’t change regardless of how many people are in a household. Also, total IRS National Standards for two-person households were lowered by 1.5%. Much of the 2023 decrease in IRS allowances for these households has been applied to clothing and housekeeping expenses.
Note that current IRS Collection Financial Standards went into effect on April 24, 2023.
What Are the 2023 IRS National Standards Amounts for Food, Clothing and Other Items?
2023 IRS Food Allowance
The monthly IRS National Standards amount for food in 2023 is $466 for a one-person household (+8.1% change YoY); $777 for a two-person household (0% change YoY); $936 for a three-person household (+3.7% change YoY); and $1,123 for a four-person household (+9.2% change YoY). Note that the IRS food allowance is for food from a grocery store and doesn’t include fast food, takeout, or delivery.
2023 IRS Clothing Allowance
The monthly IRS National Standards amount for apparel and clothing in 2023 is $96 for a one-person household (-3.0% change YoY); $145 for a two-person household (-10.0% change YoY); $207 for a three-person household (0% change YoY); $252 for a four-person household (-9.7% change YoY). Apparel includes items like clothing, shoes, watches, and jewelry.
2023 IRS Personal Care Allowance
The monthly IRS National Standards amount for personal care products and services in 2023 is $43 for a one-person household (0% change YoY); $78 for a two-person household (0% change YoY); $91 for a three-person household (+16.7% change YoY); and $97 for a four-person household (0% change YoY). Personal care products for bathing, oral hygiene, cosmetics, and shaving qualify for the personal care allowance.
2023 IRS Housekeeping Allowance
The monthly IRS National Standards amount for housekeeping supplies in 2023 is $47 for a one-person household (+17.5% change YoY); $80 for a two-person household (-2.4% change YoY); $85 for a three-person household (+14.9% change YoY); and $90 for a four-person household (+5.9% change YoY). The Housekeeping allowance covers laundry supplies, cleaning supplies, lawn and garden supplies, stationery, postage and more.
2023 IRS Miscellaneous Allowance
Taxpayers also get a monthly allowance for miscellaneous expenses: $189 for one person (+11.2% change YoY); $309 for two people (0% change YoY); $381 for three people (+9.2% change YoY); and $431 for four people (+4.6% change YoY). Expenses that count as miscellaneous include credit card payments, bank fees, and school supplies. The monthly miscellaneous national standards allowance can also be used to offset other expense amounts greater than national standards amount.
2023 IRS Total Expense Allowance
When you add up all of the monthly allowances, the total IRS National Standards amount for expenses each month in 2023 is $841 for a one-person household (+7.1% change YoY); $1,389 for a two-person household (-1.5% change YoY); $1,700 for a three-person household (+5.6% change YoY); and $1,993 for a four-person household (+4.9% change YoY).
What Is the 2023 IRS National Standards Amount for Out-of-Pocket Health Care Expenses?
The 2023 IRS national standard for out-of-pocket health care expenses is $79 per month for taxpayers under 65 years old (+5.3% change YoY) and $154 per month for taxpayers 65 and older (0% change YoY).
Does the IRS Set National Standards for Housing, Utilities and Transportation?
No, the IRS does not set national standards for housing, utilities and transportation. Instead, using information from the U.S. Census Bureau, it sets local standards based on the cost of living in a given area. Taxpayers are usually allotted the lesser of the local standard for their area and what they actually paid.
How Does the IRS Use Collection Financial Standards and Allowable Living Expenses to Determine a Taxpayer’s Ability to Pay Tax Debt?
The IRS compares these national standards for basic living expenses to a taxpayer’s income and looks at the amount of money that is left each month. Based on that remaining monthly amount, the IRS has an idea of how much a taxpayer should be able to pay each month toward their back taxes without suffering undue financial hardship. These standards are important for the IRS to determine what IRS Fresh Start Initiative tax relief program you qualify for.
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