IRS Collection Financial Standards
The IRS has a specific method for determining what expenses it will allow when assessing a taxpayer’s financial situation. These are called Collection Financial Standards and are divided into four main categories:
Food, Clothing, and Other Items
Out-of-Pocket Healthcare Expenses
Housing and Utilities
Transportation Costs
These standards are set nationally, with variations for housing and utilities based on geographic location. While they may seem reasonable on paper, many taxpayers find that these allowances do not reflect real-world costs, especially in high-cost areas.
The Impact of Inflation on Allowable Expenses
One of the most frustrating aspects of the IRS’s financial standards is their failure to keep up with inflation. Over the past few years, the cost of essential goods has skyrocketed. For example:
Eggs: Up 110%
Flour: Up 29%
Orange Juice: Up 82%
Overall Grocery Bills: Up 22%
Despite these increases, the IRS lowered the national standard for food, clothing, and other necessities, making it even harder for taxpayers to qualify for relief. This is a direct contradiction to the financial struggles many Americans are facing, making it clear that the IRS is not accounting for the economic reality of rising costs.
Housing and Utilities: A Major Issue
One of the most significant challenges taxpayers face is the IRS’s allowable amounts for housing and utilities. These expenses vary by county and state, but they often fall short of what people actually pay. For instance:
Las Vegas, NV (Clark County): The IRS allows $1,900 per month for a single person. In reality, many renters are paying over $3,000.
New York City (Kings County, NY): The allowable amount is $3,213, yet actual costs can be $5,000 or more.
Previously, the IRS used a “150% rule,” which allowed some flexibility in these numbers. However, the Biden administration removed this rule, making it much harder for taxpayers to get credit for their actual expenses.
Healthcare Expenses: Limited Flexibility
The IRS provides some allowances for out-of-pocket healthcare expenses:
Under 65 years old: $83 per month
65 and older: $158 per month
However, additional medical costs, such as dietary restrictions or specific treatments, must be doctor-diagnosed to be considered. Cosmetic procedures, even those necessary after accidents, may not qualify unless they are directly tied to essential health recovery.
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The IRS’s rigid expense allowances can make it difficult for taxpayers to qualify for relief programs. Understanding these rules is critical when negotiating tax debt settlements or payment plans. If you’re struggling with tax debt, knowing which expenses the IRS will allow—and how to present them properly—can make a significant difference to your financial outcome.
If you have questions about how these standards apply to your situation, consulting a tax professional can help you navigate these complex rules and find the best solution for your tax debt challenges.
Book a free consultation with a Guardian Tax Professional today to get clear answers to your unique situation.
