IRS Allowable Living Expenses
The Internal Revenue Service (IRS) has established Collection Financial Standards to determine a taxpayer’s ability to pay delinquent tax liabilities. These standards include National Standards for food, clothing, and other items, Out-of-Pocket Health Care standards, Local Standards for housing and utilities, and Transportation standards (22 CFR § 17.6; IRS, n.d.).
National Standards
The National Standards cover necessary expenses such as food, housekeeping supplies, apparel, personal care products, and miscellaneous expenses. Taxpayers are allowed the total National Standards amount monthly for their family size without questioning the amount actually spent (IRS, n.d.).
Out-of-Pocket Health Care Expenses
The IRS has established standards for out-of-pocket health care expenses, including medical services, prescription drugs, and medical supplies. These standards are based on average amounts per person and are allowed in addition to health insurance expenses (IRS, n.d.).
Local Standards
The Local Standards vary by location and include allowances for monthly housing and utilities and transportation expenses. Taxpayers are generally allowed the amount actually spent or the local standard, whichever is less (IRS, n.d.).
Six Year Rule
In cases where taxpayers cannot fully pay their tax liabilities and do not qualify for streamlined agreements, they may qualify for the six-year rule. This rule allows for payment of living expenses that exceed the Collection Financial Standards, as long as the tax liability can be fully paid within six years (IRS, n.d.).
References
- IRS. (n.d.). Collection Financial Standards. Retrieved from https://www.irs.gov/businesses/small-businesses-self-employed/collection-financial-standards
- 22 CFR § 17.6 – Ordinary and necessary living expenses. (n.d.). Retrieved from https://www.law.cornell.edu/cfr/text/22/17.6
- Brotman, S. (n.d.). What Are IRS Allowable Living Expenses? Retrieved from https://www.sambrotman.com/offer-in-compromise/living-expenses
FAQs
What are living expenses for taxes?
1. What is included in allowable living expenses for taxes?
Allowable living expenses for taxes include necessary expenses such as food, clothing, housing, transportation, and healthcare.
2. How are allowable living expenses determined?
Allowable living expenses are determined based on the IRS Collection Financial Standards, which include National Standards, Out-of-Pocket Health Care standards, and Local Standards.
3. What are National Standards?
National Standards cover necessary expenses such as food, housekeeping supplies, apparel, personal care products, and miscellaneous expenses. Taxpayers are allowed the total National Standards amount monthly for their family size without questioning the amount actually spent.
4. What are Out-of-Pocket Health Care standards?
Out-of-Pocket Health Care standards cover expenses such as medical services, prescription drugs, and medical supplies. These standards are based on average amounts per person and are allowed in addition to health insurance expenses.
5. What are Local Standards?
Local Standards vary by location and include allowances for monthly housing and utilities and transportation expenses. Taxpayers are generally allowed the amount actually spent or the local standard, whichever is less.
6. What is the Six Year Rule?
The Six Year Rule allows taxpayers who cannot fully pay their tax liabilities and do not qualify for streamlined agreements to pay living expenses that exceed the Collection Financial Standards, as long as the tax liability can be fully paid within six years.
7. How can I find out the allowable living expenses for my location?