If you are unemployed and owe back taxes, you do not need to worry about an interruption of your unemployment benefits.
What if I’m currently on an existing Installment Agreement with the IRS?
If you have an existing Installment Agreement with the IRS and can’t afford to make any more payments as a result of your unemployment status, call the IRS. Request that they place you in a Currently Non Collectable Status (“CNC”) also known as Hardship Status. The IRS will not place a taxpayer in a financial situation where the taxpayer would be unable to meet his/her basic monthly living expenses. This includes rent or mortgage, food, childcare, healthcare, utilities and transportation costs.
How about if I’m NOT currently on an existing Installment Agreement with the IRS?
If you do not have an existing Installment Agreement and you are in active collections with the IRS, you can call them and update them on your unemployment status. Often times the IRS will only need to see a copy of a letter from the unemployment office or a copy of your unemployment check. This is also true for Welfare recipients.
Will I qualify for an Offer in Compromise if I’m currently on unemployment benefits?
Many taxpayers believe that they may qualify for an Offer in Compromise (OIC) with the IRS based upon their new “unemployment status.” In analyzing whether the IRS will accept an OIC, the IRS will make a determination based upon the taxpayers ability to pay. The IRS will review if a taxpayer has any appreciable equity in any assets (the IRS will reduce the value of your assets by 20% and other standard exemption amounts). The IRS will then look at your income and living expenses to determine an OIC amount. If you are “month to month” or living “paycheck to paycheck” with no appreciable equity in assets, you will most likely qualify for an offer.
If you receive unemployment benefits as your income, the IRS cannot make a collection determination as the unemployment benefits are temporary. Therefore the IRS will not entertain an OIC. The IRS will want to see the income potential after your unemployment period ends.
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