When a taxpayer seeks to reach a tax settlement with the IRS they may be required to consider the national and local IRS collection financial standards when calculating the amount they are expected to pay.
Taxpayers in Boca Raton and elsewhere in Palm Beach and Broward Counties who request an installment agreement or offer in compromise to settle back tax debt will use both the national and local expense standards and other actual living expenses permitted by the IRS. The total of all allowable living expenses are subtracted from the taxpayer’s monthly income to derive the monthly payment the IRS expects to receive in an installment agreement or offer in compromise.
IRS Collection Financial Standards
The National Standards include an allowance for expenses such as food, clothing, housekeeping supplies, personal care products and services, and miscellaneous expenses. Currently, the allowable expense allowance for a family of two, three and four members is $1053, $1234, and $1465, respectively. Generally, you are required to use these amounts whether you live in a high cost of living area such as New York City or a low cost of living area such as Nebraska. These amounts are allowable without the need to provide documentation. If you want to claim more than the national standards you must provide documentation to substantiate and justify why the additional expenses above the national standards should be allowed. This justification should relate to the health and welfare of the family or for the production of income.
An additional National Standard covers out-of-pocket health care expenses. This category is meant to cover such items as medical services, prescription drugs, and medical supplies. You and your dependents are permitted the standard monthly amount on a per person basis, without the need to document the actual amounts spent. If you want to claim a greater amount you must provide substantiation. The national standard is now $60 for individuals under the age of 65 and $144 for those age 65 and older.
Local housing and utility standards vary county by county in each State. For example, if you reside in Palm Beach County and your household is comprised of 4 people, your allowable expense for housing and utilities is $2496. These expenses include mortgage payments or rent, real estate taxes, insurance, maintenance and repairs, gas, electric, water, heating oil, garbage collection, telephone and cell phone service, cable television, and internet service. If you spend less for housing and utilities than the standard amount you must use that amount and not the higher standard amount. There are limited circumstances when you may be able to claim more than the standard amount in reaching a tax settlement.
Transportation costs is another local standard and covers ownership and operating expenses of your automobile and if applicable, an allowance for public transportation.
There are other expenses used to compute your allowable living expenses that are not covered by the national or local standards. Such expenses may include health insurance, term-life insurance, taxes, alimony and child support, and child care.
Get Help to Resolve Your Back Tax Problems
The CPAs at East Coast Tax Consulting Group will help you determine your allowable living expenses to be used in your request for an installment agreement or offer in compromise. If you live or work in Boca Raton or elsewhere in South Florida we will help you reach an IRS tax settlement. Call us today at 561-826-9303 for your free consultation.