IRS Hardship: Are You Eligible?

Written by Top Dog Tax Relief          
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Overview

Dealing with tax debt can feel like you’re fighting an uphill battle, especially when financial stress makes it hard just to get by. Fortunately, the IRS provides a relief option known informally as “hardship” status, which can temporarily halt collection activity when you qualify. In this article, we’ll walk you through what the IRS Hardship Program is, who may be eligible, how to request it, and what alternatives may exist if hardship relief isn’t available to you. At Top Dog Tax Relief, we believe in equipping you with knowledge and helping you make the right moves for your financial well-being.

Key Takeaways

  • IRS Hardship (CNC status) temporarily halts collection efforts like garnishments or levies, but your tax debt, interest, and penalties remain active.

  • Eligibility depends on proving financial hardship, with the IRS reviewing income, expenses, and assets to ensure you cannot reasonably pay.

  • Other tax relief options are available — including installment agreements, Offers in Compromise, and penalty relief — if you don’t qualify for hardship status.

What Is the IRS Hardship Program?

The IRS Hardship Program, more formally known as Currently Not Collectible (CNC) status, is designed for taxpayers who cannot afford to pay their tax debt without sacrificing basic living expenses. When the IRS determines that enforcing collection would create an undue financial burden, it may temporarily suspend active efforts such as wage garnishments, bank levies, or property seizures.

It’s important to understand, however, that hardship status does not erase your debt. Interest and penalties continue to accrue while you’re in CNC, and any tax refunds you might receive are generally applied to your outstanding balance. The IRS also reviews hardship cases periodically, so if your financial situation improves, collection activity may resume. In some situations, if the statute of limitations on collection runs out (typically ten years from when the tax was assessed), the debt may ultimately expire. Until that point, though, your liability remains on record, even if collection is paused.

IRS Hardship Eligibility

To be eligible for hardship (CNC) status, you must demonstrate to the IRS that enforcing collections would create undue financial hardship. Here are key factors the IRS considers:

  1. Income vs. Expenses. The IRS requires a full disclosure of your income and allowable living expenses. You must show that after accounting for essential living costs (housing, utilities, food, transportation, health care, etc.), you have little or no disposable income. If there’s any “excess” income according to IRS guidelines, you may be required to make payments.
  2. Asset and Equity Evaluation. You’ll need to disclose your assets, their fair market value, and any equity you have. If you have nonessential assets that can be liquidated, the IRS may expect you to use them.
  3. Annual Income Thresholds and Other Criteria. Although there is no fixed “income cap,” your income must be low enough relative to your expenses that you cannot pay. The IRS examines whether your hardship is temporary or long-term, your future earning potential, and other financial obligations.
  4. Current Tax Compliance. You generally must be current with your tax filings and not in an uncooperative or fraudulent status. If your case is being audited or under other pending actions, it may complicate your eligibility.

Not everyone qualifies, and meeting “hardship” is a stricter standard than simply saying you can’t afford your payments.

How to Request IRS Hardship Relief

If you believe you may qualify, here are the steps to apply for hardship status.

  1. Gather Documentation
    • Recent income statements (pay stubs, bank statements, etc.)
    • Proof of monthly expenses (rent or mortgage, utilities, insurance, medical costs, etc.)
    • Asset and liability information (property, vehicles, investments, loans, credit cards)
  2. Complete the Correct IRS Collection Information Form
    • Form 433-A (for individuals)
    • Form 433-F (simplified version for some individuals or self-employed)
    • Form 433-B (for businesses, partnerships, or corporations)
    • On the form, you’ll lay out your income, expenses, assets, and liabilities.
  3. Submit Your Request to the IRS
    • You must submit the completed form(s) along with supporting documentation to the IRS office handling your collection case.
    • You may also follow up by phone or in writing with the IRS to ensure your request is being processed.
  4. Wait for IRS Evaluation
    • The IRS will review your financial information and decide whether to grant hardship status.
    • It may ask for additional information or clarification.
    • If approved, collection activity is halted for the duration of your hardship status (subject to review).
  5. Maintain Communication & Update as Needed
    • If your situation improves, you’ll need to inform the IRS.
    • The IRS may periodically re-evaluate your status to confirm continued hardship.

Other Tax Relief Options

If the IRS denies your hardship request or you don’t fully qualify, there are several alternative paths to consider.

  • IRS Payment Plans (Installment Agreements)
    Spread your tax liability over time. These can be short-term (generally up to 180 days) or long-term agreements. You’ll still incur interest and penalties until the full balance is paid. As long as you stay current, most collection actions cease.
  • Offer in Compromise (OIC)
    If you can show that paying the full amount would cause extreme hardship or that the IRS can’t realistically collect the debt, you may be eligible to settle for less than the full amount owed. OIC qualification criteria are strict, and you must be fully compliant with tax filings.
  • Penalty Abatement
    In some cases, you may qualify to have certain penalties reduced or forgiven if you have a reasonable cause (e.g., natural disaster, illness, or other extenuating circumstances).
  • Innocent Spouse Relief
    If part of the tax debt is due to your spouse (or ex) and you believe you shouldn’t be liable, you may explore this option.

IRS hardship (CNC status) can be a powerful tool for taxpayers in dire financial straits, but it isn’t a guarantee. Not everyone will qualify, and even when granted, your interest and penalties continue to accrue. That’s why working with a qualified tax professional, like the team here at Top Dog Tax Relief, is so important. We can help you evaluate your eligibility, prepare your documentation, and explore all possible relief options to ensure you get the right help for your situation. If you’re struggling under tax debt, don’t wait – reach out and let us help you tackle it head-on.