As of April 25, 2022, the IRS has increased its Collection Financial Standards. These standards are budgetary allowances the IRS uses when assessing a taxpayer's ability to pay delinquent taxes. The standards refer to the amounts the IRS determines are allowable, reasonable, and necessary for taxpayers in regards to common household budgetary categories. aThey are based on the Bureau of Labor Statistics, U.S. Census Bureau, and American Community Survey.
IRS National Financial Standards as of April 25, 2022
The new IRS Collection Financial Standards apply to five different spending categories and the allowance varies based on the number of people living in your home. Here is a breakdown of the standards as of April 25, 2022.
|
Expense Category |
One Person |
Two People |
Three People |
Four People |
|
Food |
$431 |
$779 |
$903 |
$1028 |
|
Housekeeping supplies |
$40 |
$82 |
$74 |
$85 |
|
Clothing and related services |
$99 |
$161 |
$206 |
$279 |
|
Personal care items and services |
$45 |
$82 |
$78 |
$96 |
|
Misc |
$170 |
$306 |
$349 |
$412 |
|
Total Allowance |
$785 |
$1410 |
$1610 |
$1900 |
For each additional person, the IRS allows you to add $344 to the total allowance for four people. If you have a family of six, for example, your total allowance is $2,588.
IRS 2021 Vs. 2022 National Collection Financial Standards
Effective in April 2022, the IRS's financial standards have increased for every family size. The increase ranges from $62 per month for a single person, to $160 per month for a family of four. The total allowance for a family rose as high as 9% as indicated below.
|
Percentage Change for 2022 Vs. 2021 National Collection Standards |
||||
|
Expense Category |
One Person |
Two People |
Three People |
Four People |
|
Food |
7.75% |
7.60% |
7.76% |
7.64% |
|
Housekeeping supplies |
-2.44% |
7.89% |
7.25% |
7.59% |
|
Clothing and related services |
7.61% |
7.33% |
7.85% |
7.72% |
|
Personal care items and services |
7.14% |
7.89% |
8.33% |
7.87% |
|
Misc |
14.86% |
15.04% |
15.18% |
15.08% |
|
Total Allowance |
8.58% |
9.13% |
9.30% |
9.2% |
In 2021, the IRS financial standards had a total allowance of $723 for a single person, $1,292 for a two-person household, $1,473 for a three-person household, and $1740 for a four-person household. If your household had more people, you could add an additional $341 for each additional person.
How the IRS Uses Financial Standards
The IRS uses financial standards to determine a taxpayer's ability to pay delinquent taxes by determining monthly cash flow.
Here's an example: imagine that you want the IRS to reduce your tax liability through the offer in compromise (OIC) program. An OIC allows you to settle your tax bill for less than you owe, and generally, the IRS won't accept an offer if it believes that you can pay more.
When you apply for an OIC, you must include a lot of detailed financial information with your application. To review your budget in a uniform and organized way, the IRS uses its Collection Financial Standards to determine your monthly disposable income. It also considers your net equity in assets.
If the IRS sees that you have a family of two and you spend $779 on food every month, the agency will agree that's a reasonable amount. However, if you spend $879 on food every month, the IRS will assume that you're overspending in this category and assume you have an extra $100 per month to pay towards your tax liability.
In rare cases, the IRS will make exceptions to its financial standards. Say for example, that you have a diagnosed illness that requires you to eat special food. The IRS may increase your monthly food allowance. Usually, the IRS only accepts increases in rare situations, and for best results, you may want to work with a tax professional.
IRS Collection Standards and Payment Plans
Financial standards play a significant role in determining eligibility for certain IRS resolutions, but they don't come into play in many cases. For example, the majority of IRS installment agreements are streamlined which normally do not require a financial analysis. In most cases, you can set up a payment plan without taking these standards into account.
As long as you can afford to pay the minimum monthly payment amount with an installment agreement, the IRS generally will not need to review your financials.
However, if you cannot afford the minimum monthly payment with an Installment Agreement, if you owe more than $50,000 (including penalties and interest) or your business owes $25,000 or more, IRS may want to take a deeper look into your finances. At this point, the National Collection Financial Standards and the local standards start to come into play.
What About Other Expenses?
As you can see, the National Collection Financial Standards cover food, cleaning supplies, clothing, personal care, and a little bit of extra money. What about the rest of your budget? Well, out-of-pocket health care costs are determined nationally by age. They changed as well recently for 2022. If a taxpayer is above these standards, they will need to substantiate expenses.
|
2022 vs. 2021 Out of Pocket Health Care Standards |
||||
|
|
Out of Pocket Costs 2021 |
Out of Pocket Costs 2022 |
Nominal Change |
Percentage Change |
|
Under 65 |
$68 |
$75 |
$75 |
10.29% |
|
65 and Over |
$142 |
$153 |
$7 |
7.75% |
Healthcare along with the rest of the expenses mentioned so far are based on national cost averages. For the rest of the expense categories, the IRS uses local standards.
The IRS understands that housing, utilities, and transportation costs can differ depending on where you live. As a result, all of these expense categories are largely calculated based on regional costs. However, for public transportation, there is a single nationwide allowance. The IRS has links to the updated regional standards on its website for housing and utilities and transportation.
Get Help With IRS Tax Problems Today
Deciphering the IRS's rules and procedures can be complicated and overwhelming, especially if you are facing a major IRS problem and need to complete form 433. Luckily, you don't have to handle this process on your own, but you also don't need to blow your budget and become just a number with the big-name tax resolution firms.
Instead, you can use TaxCure to find an experienced tax professional in your area. TaxCure's search feature lets you search for local pros with the experience you need. You deserve one-on-one attention from a tax pro who really cares about what happens to you. Use TaxCure to find a local tax pro who can help with IRS and state tax problems today.