Do you owe the IRS, and want to pay the debt in monthly payments? If you can fully pay the amount owed in six years (and up to ten years in some situations) it may be a straightforward process. But what if you cannot afford to pay that much? If these situations the IRS may approve a Partial Payment Installment Agreement. The IRS will look at your income and your monthly living expenses to determine your ability to pay. However, the IRS will expect you to follow their budget – the Collection Financial Standards.
The IRS will put you on a budget based on their local and national standards of allowable expenses. In some circumstances the IRS may find that the standards are not adequate for you to meet your basic living expenses and they may allow for your actual expenses. Here is an overview of the amounts of expenses the IRS allows in 2021:
Clothing, Food, and Personal Care
The IRS has a national standard for food and clothing, which means that no matter where you live the amount is the same. It only varies by the number of people in your family. For one person the IRS will allow a total of $723/month; for two persons $1,292/month; three persons $1,473; and a family of four $1,740. If there are more than four people in your family then the IRS will allow a total of $341 for each additional person. This standard applies to all food, housekeeping supplies, clothing and services, personal care products, and a miscellaneous allowance which you can apply to credit card payments or bank fees.
Out-of-Pocket Health Care
The IRS will allow persons under the age of sixty-five $68/month per person, and if you are 65 years old and older, $142/month per person. If you spend less than the standard amount per month, the IRS will allow the standard ($68 and $142) without question. However, if you need to spend more than the standard amount you will have to document the expenses as necessary living expenses.
Housing and Utilities
Housing and utilities standards are based on where you live. For example, a family of four in La Paz County, Arizona is allowed $1,453 per month for housing and utilities. A family of four in King County, Washington is allowed $3,297 per month. If your rent/mortgage and utilities are less than the local standard, the IRS will only allow you the lesser actual amount spent. However, if your mortgage and utilities are higher than the local standard you will have to show that the expenses are necessary living expenses with the IRS.
Transportation: Car Payments and Public Transportation
Automobile ownership costs are also based on the area in which you live. You are allowed ownership costs for car payments for up to two cars. Single persons are allowed one car loan payment. For each car you will be allowed the lesser of the actual monthly lease or car payment, or the ownership costs allowed per region. You will also be allowed operating costs by region of the lesser of your actual monthly operating costs or the amount allowed in your region. Public transportation, however, is a national allowance of $217/month. You are allowed to own a car and use public transportation, so you could claim both.
The IRS will add all of these expense amounts as allowed by the Collection Financial Standards to determine your allowable expenses. Then your required monthly payment will be the difference between your monthly income and your allowable monthly expenses. So, you will want to make sure that the IRS considers all your allowable expenses.
If you owe the IRS and are considering a payment plan, contact our firm to consider all your options. We can help you determine if a payment plan is the best option for you. Reach out to us today to set up an initial consultation with our team.
Robert V. Boeshaar Attorney at Law, LL.M.,PLLC
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