IRS Tax Hardship Rules
How Financial Hardship Can Stop IRS Collections
Are you struggling to pay the IRS because your income barely covers basic living expenses?
Many taxpayers don’t realize the IRS offers relief options for people facing genuine financial hardship. Under IRS tax hardship rules, certain taxpayers may qualify for a status known as Currently Not Collectible (CNC)—which temporarily stops IRS collection activity.
If collecting your tax debt would leave you unable to pay for necessities like housing, food, utilities, or healthcare, the IRS may be required to pause enforcement efforts while you get back on your feet.
What Is the IRS Hardship Program?
The IRS Hardship Program is designed for taxpayers who cannot afford to pay their tax debt without creating an unfair financial burden. When the IRS determines that collecting taxes would prevent you from meeting necessary living expenses, your account may be placed into Currently Not Collectible (CNC) status.
The IRS defines hardship as a situation where “collection of the liability would create a hardship for the taxpayer by leaving them unable to meet necessary living expenses.”
Once approved for CNC status:
- The IRS pauses wage garnishments
- Bank levies are stopped
- Property seizures are halted
This doesn’t erase the debt, but it does provide critical breathing room while alternative solutions are evaluated.
What Happens After You’re Declared Currently Not Collectible?
When your account is placed into CNC status, the IRS temporarily stops active collection efforts. With the help of a tax professional, you can then explore next steps such as:
- Affordable monthly payment plans
- Long-term resolution strategies
- Preparing for a potential settlement
For many taxpayers, hardship status is the first step toward stabilizing their finances and addressing back taxes realistically.
IRS Hardship Eligibility Requirements
You may qualify for IRS hardship relief if your income is just enough to cover basic living expenses and little or nothing is left over to pay the IRS.
To apply, the IRS requires detailed financial disclosure using one of the following forms:
- Form 433-A or 433-F (individuals and self-employed taxpayers)
- Form 433-B (certain businesses)
These Collection Information Statements report:
- All assets you own (bank accounts, vehicles, retirement accounts, real estate, etc.)
- Estimated market value of those assets
- Income for the past three months
- Living expenses for the past three months
- A calculated monthly average of income and expenses
The IRS uses this information to determine whether you qualify under hardship rules.
IRS Allowable Living Expenses
To qualify, your expenses must fall within IRS Collection Financial Standards, which include four main categories:
- Food, clothing, personal care, and household supplies
- Out-of-pocket healthcare costs
- Housing and utilities
- Transportation
Your net disposable income is calculated by subtracting allowable expenses from your monthly income. If little or no income remains, you may qualify for hardship status.
Generally, hardship cases involve taxpayers earning under approximately $84,000 annually, though qualification depends on total financial circumstances—not income alone.
Who Qualifies for IRS Hardship Status?
IRS hardship rules generally apply to:
- Individual taxpayers
- Joint filers
- Self-employed individuals
- Sole proprietors
- Small business owners where the individual is personally liable
CNC status is not typically intended for large corporations. Businesses unable to pay due to financial distress may need to explore bankruptcy or other legal options.
What IRS Collection Actions Are Stopped?
Once approved for hardship status, the IRS cannot take the following actions:
Tax Liens
A lien is the IRS’s legal claim against your property. While existing liens may remain, new enforcement actions are paused.
Tax Levies
Levies allow the IRS to seize assets or funds. CNC status stops active levies, including bank account seizures.
Wage Garnishment
The IRS must stop garnishing wages while your account remains in hardship status.
How Long Does IRS Hardship Status Last?
The IRS can legally collect taxes for up to 10 years, and hardship status may apply during that timeframe. However:
- The IRS reviews hardship cases approximately every two years
- If your income increases or expenses decrease, CNC status may be removed
Even while collections are paused, interest and penalties continue to accrue.
Important Rules to Know
- CNC status does not forgive tax debt
- Penalties for failure to file and failure to pay still apply
- Each tax year is evaluated separately
- New tax debt does not automatically fall under existing hardship status
It’s critical to continue filing tax returns on time—even if you can’t pay.
Alternative Options to IRS Hardship
In some cases, other solutions may be more effective than hardship status:
IRS Installment Agreements
Monthly payment plans based on what you can afford.
Offer in Compromise (Tax Settlement)
A negotiated settlement where the IRS agrees to accept less than the full amount owed if repayment is unlikely.
Choosing the right option depends on your financial outlook, assets, and long-term ability to pay.
Should You Work With a Tax Advocate?
Applying for IRS hardship requires detailed financial disclosure and careful presentation. A qualified tax professional can:
- Ensure forms are completed accurately
- Prevent unnecessary disclosure
- Negotiate with the IRS on your behalf
- Identify the best resolution strategy for your situation
If you’re facing IRS collections and can’t afford to pay, understanding and applying IRS tax hardship rules correctly can make a significant difference. Arch Tax works with tax payers every day. Schedule a free consultation.
