While no one here in Connecticut, or elsewhere, wants to pay taxes, some people genuinely can’t pay them. Their financial situations simply do not allow for it despite the taxpayers’ best intentions to honor the debt.
If you find yourself in this situation, you may feel as though you have little to no options. You may brace yourself for the worst from the IRS, but it may not have to come to that.
Another option may exist
The IRS could declare your tax debt in “currently not collectible status.” This determination gives you the opportunity to improve your financial situation in order to address your tax situation. During this time, the IRS will curtail collection activities such as garnishing your wages or putting a levy on your bank account. The agency will also not request that you enter into a payment plan.
You should know the downsides, too
You may wonder where to sign up for this option. Before you do, you need to know more. For instance, this status does not erase your tax debt. The balance also continues to accrue interest and penalties while you aren’t paying. Moreover, if you receive tax refunds during this time, the IRS may seize them to apply to the balance you owe.
The IRS may also put a lien on your property, which will show up on your credit report. Your current and potential creditors will know that you owe back taxes to the IRS.
Should you pursue this option?
Not everyone would benefit from requesting this status from the IRS. However, if you meet some or all of the following conditions, it may be worth trying:
- Your income is not more than $84,000 a year.
- Your expenses fall under the guidelines set by the IRS.
- You have no income and are unemployed.
- You have little to no disposable income once you pay the essentials such as utilities, rent and groceries.
- You have less than a few years on the statute of limitations, which is 10 years.
- Your income consists of welfare, Social Security or unemployment benefits.
If you qualify for this status, the IRS will keep tabs on your financial situation by periodically reviewing it. If your financial circumstances improve enough, the agency will remove the status and expect you to arrange for payment of the amount you owe.
If you believe this status will help in your situation, you may want to seek out some advice and support to increase your chances.