tax debt relief

All You Need to Know About Tax Debt Relief

Escaping the Inevitable Taxes Unscathed

Tax debt is perhaps the most inescapable form of indebtedness one can incur. This is because the government, either at the state or federal level, can always get individuals to pay their tax bill, however long it takes.

Another fact about overdue tax bills is that it often results in severe penalties and interest charges. The Internal Revenue Service (IRS) or the state's tax authority may place a lien on the tax debtor's property, garnish their wages or salary and freeze their bank account. To put it mildly, the list of things that can happen to tax defaulters is endless.

While the safest way to deal with tax debt is to avoid it in the first place, financial constraints and unforeseen contingencies can get anyone to become a tax debtor. How, then, can one pay off a tax debt?

This article answers this pertinent question with more insight into what tax debt relief means and the options available. Do you want to find out all the details? This article is the perfect piece for you. Read on and see for yourself.

What is Tax Debt Relief?

Tax-debt relief pertains to the various alternatives for settling an individual's tax. This also encompasses programs designed to aid taxpayers who cannot afford their tax payments or have past-due tax bills to manage, pay off, or resolve their tax debt altogether.

It's crucial to understand that falling behind on state or local taxes differs significantly from owing federal taxes. Although state and local tax authorities provide debt settlement programs, these can differ greatly from the IRS's relief options. Therefore, it is important to ascertain your state's specific terms and conditions if you are in debt to state or local tax authorities.

Who Might Need Tax-Debt Relief?

The following categories of people need tax-debt relief:

  • Anyone who cannot afford to cover the bill of their overdue taxes.
  • Anyone who has failed to file their tax return for over a year.
  • Anyone with over $52,000 in tax debt.
  • Anyone who gets a letter from the IRS regarding their outstanding tax debt.
  • Anyone on whose behalf the IRS has hired a private debt collector.
  • Anyone who has their passport denied, revoked, or confiscated by the States Department based on the directives of the IRS.

If you fall under any of the above-listed categories, then you need to get debt relief. It's a good thing we have highlighted your options in the succeeding session.

What Are Your Debt Relief Options?

The IRS offers a repertoire of debt relief options. These include:

Installment Agreements

An installment agreement with the IRS functions akin to a loan. Under this arrangement, the taxpayer can remit a fixed sum of money monthly for a maximum of six years until the entire tax debt, including penalties and interest, is fully satisfied. As straightforward as this may appear, this installment agreement is not free of charge. The IRS will include interest charges to the initial tax debt to be paid, and the tax debtor will have to pay the lump sum over the specified schedule.

Penalty and Interest Abatement

If a tax debtor suffers severe financial hardship, the IRS may provide penalty abatement by waiving specific penalties and halting additional charges. The agency's First Time Penalty Abatement policy allows it to offer some relief to tax debtors who have failed to file a tax return, pay their taxes on time, or deposit taxes.

Offer in Compromise

An offer in compromise (OIC) is a settlement agreement wherein the tax debtor agrees to pay a reduced amount of their tax debt. In this arrangement, the tax debtor must commit to paying the debt through either a lump-sum payment plan or a fixed monthly installment plan to the IRS.

To qualify for the OIC, the taxpayer in question must show solid evidence that they cannot afford a one-time payment of their outstanding tax bill immediately or later. The IRS will then weigh this evidence alongside other factors, such as the tax debtor's income, expenses and asset equity.

Upon granting any taxpayer an IOC, the IRS demands that they pay a nonrefundable application fee. The application fee is 20% of the total outstanding tax debt when the tax debtor requests an IOC.

Currently Not Collectible

The name "Currently Not Collectible" already implies the details of this IRS tax relief option. Taxpayers who genuinely can't afford to pay any money toward their debt and can prove their financial situation to the IRS can defer their tax bill.

When the IRS designates a tax debt as "Currently Not Collectible," the agency temporarily suspends its collection efforts. This is supposed to give the tax debtor some time to pay their tax debt.

However, this option has a drawback - the debt accumulates interest and penalties during the deferment period. Additionally, the IRS can file a lien against the tax debtor's property and utilize their future tax refunds to offset any outstanding tax debts.

IRS Debt Forgiveness Program

Please note that this program is not synonymous with the students' debt forgiveness program and is not an unlimited tax forgiveness initiative. This program is tagged "The IRS's Fresh Start Initiative." It was created in 2011 to help taxpayers get into a more organized tax compliance system. This initiative is a tax debt forgiveness program that ensures taxpayers are eligible for installment programs or offer-in-compromise settlements.

Innocent Spouse Relief

The IRS has a consideration for spouses or exes who find themselves liable for taxes or debt limit bills through no fault of theirs. In cases where joint tax returns are filed, spouses are equally responsible for any tax debts. Nonetheless, the IRS has established provisions to absolve a spouse or exes of taxes, penalties and interest if their partner is solely at fault for underreporting taxes owed.

To enjoy this relief, the partner must file a complaint to the IRS and meet the set criteria of innocence. The IRS has the sole authority to decide whether this spouse qualifies for this tax relief.

Non-IRS Debt-Relief Help

There are alternative methods to settle one's tax bill that does not require incurring an additional debt ceiling or engaging directly with the IRS. These options include:

Tax-relief company

Tax-relief firms usually assist taxpayers who are struggling with tax debt. A reputable tax relief company can offer valuable guidance to tax debtors struggling to understand the tax payment process or requiring assistance completing paperwork. However, their services are not free of charge and the tax debtor may be required to pay an initial fee and a portion of the tax owed to the tax relief company.

Financial counseling

By reviewing an individual's financial situation, a financial counselor can provide recommendations and suggest the most effective strategies for overcoming debt. This counseling service is often available at a decent fee.

Legal Assistance

Attorneys can examine options for dismissing unpayable debts, and in certain situations, bankruptcy may be a viable solution for resolving tax debt. With the assistance of a skilled lawyer, a tax debtor may be able to settle or discharge their tax debt expediently.


There you go. Now you know what to do if you ever need tax debt relief. Remember, your best bet is to pay your tax as and when due and stay within your tax debt limit. If you need more details on tax debt relief, let us know.