The IRS allows individuals who owe back taxes to set up payment plans or submit an Offer in Compromise to pay off tax debt. In order to determine how much a delinquent taxpayer should be required to pay, the IRS uses Collection Financial Standards. These standards help the IRS determine a taxpayer’s necessary monthly expenses to provide for themselves and their family.
Based on these expenses and the taxpayer’s income, the IRS can estimate how much is left over to be paid toward back taxes.
What Are IRS Collection Financial Standards?
IRS Collection Financial Standards use a taxpayer’s family size and geographic location to estimate how much they must spend each month on food, clothing, healthcare, and other items in order to provide themselves and their families with safe, healthy and comfortable living conditions. The IRS uses these national standards to set the amount that a delinquent taxpayer must contribute each month toward their back taxes.
Did the IRS Increase National Standards and Allowable Living Expenses for 2022?
The current IRS Collection Financial Standards are in effect as of April 25, 2022. On this date, the IRS increased its National Standards by 8% to 9% percent, giving delinquent taxpayers a larger allowance for their monthly living expenses. The IRS made this change in response to historically high inflation the country has seen over the past few months.
In April 2022, the inflation rate hit 8.5%, its highest level since 1980. Recognizing the strain that rising prices are putting on household budgets, the IRS raised its Collection Financial Standards.
What Are the 2022 IRS National Standards Amounts for Food, Clothing and Other Items?
2022 IRS Food Allowance
The monthly IRS National Standards amount for food in 2022 is $431 for a one-person household, $779 for a two-person household, $903 for a three-person household and $1,028 for a four-person household. Note that the IRS food allowance is for food from a grocery store and doesn’t include fast food, takeout, or delivery.
2022 IRS Clothing Allowance
The monthly IRS National Standards amount for apparel and clothing in 2022 is $99 for a one-person household, $161 for a two-person household, $206 for a three-person household and $279 for a four-person household. Apparel includes items like clothing, shoes, watches, and jewelry.
2022 IRS Personal Care Allowance
The monthly IRS National Standards amount for personal care products and services in 2022 is $45 for a one-person household, $82 for a two-person household, $78 for a three-person household and $96 for a four-person household. Personal care products for bathing, oral hygiene, cosmetics, and shaving qualify for the personal care allowance.
2022 IRS Housekeeping Allowance
The monthly IRS National Standards amount for housekeeping supplies in 2022 is $40 for a one-person household, $82 for a two-person household, $74 for a three-person household and $85 for a four-person household. The Housekeeping allowance covers laundry supplies, cleaning supplies, lawn and garden supplies, stationery, postage and more.
2022 IRS Miscellaneous Allowance
Taxpayers also get a monthly allowance for miscellaneous expenses: $170 for one person, $306 for two people, $349 for three people and $412 for four people. Expenses that count as miscellaneous include credit card payments, bank fees, and school supplies. The monthly miscellaneous national standards allowance can also be used to offset other expense amounts greater than national standards amount.
2022 IRS Total Expense Allowance
When you add up all of the monthly allowances, the total IRS National Standards amount for expenses each month in 2022 is $785 for a one-person household, $1,410 for a two-person household, $1,610 for a three-person household and $1,900 for a four-person household.
What Is the 2022 IRS National Standards Amount for Out-of-Pocket Health Care Expenses?
The 2022 IRS national standard for out-of-pocket health care expenses is $75 per month for taxpayers under 65 years old and $153 per month for taxpayers 65 and older.
Does the IRS Set National Standards for Housing, Utilities and Transportation?
No, the IRS does not set national standards for housing, utilities and transportation. Instead, using information from the U.S. Census Bureau, it sets local standards based on the cost of living in a given area. Taxpayers are usually allotted the lesser of the local standard for their area and what they actually paid.
How Does the IRS Use Collection Financial Standards and Allowable Living Expenses to Determine a Taxpayer’s Ability to Pay Tax Debt?
The IRS compares these national standards for basic living expenses to a taxpayer’s income and looks at the amount of money that is left each month. Based on that remaining monthly amount, the IRS has an idea of how much a taxpayer should be able to pay each month toward their back taxes without suffering undue financial hardship. These standards are important for the IRS to determine what IRS Fresh Start Initiative tax relief program you qualify for.
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