Sometimes seniors find themselves owing past-due federal taxes they cannot afford to pay. Although notices from the IRS can be especially frightening, there are solutions.
If the sum owed is less than $50,000, the IRS will accept monthly payments over five years. For example, if $6,000 is owed to the IRS, monthly payments of around $100 can be made. There are also laws in place that provide that persons unable to pay their taxes can be placed on Currently Not Collectible (CNC) status with the IRS and not have to pay their past-due income taxes. The IRS is generally very understanding and helpful towards seniors with lower incomes applying for currently not collectible status.
Seniors with especially low incomes can often obtain CNC status by simply phoning the IRS at the number on an IRS collection notice. You can ask the collector to file “53” on your case, which means filing IRS form 53 (only a collector or IRS official can do this). You will not need to file detailed financial paperwork. For example, a senior with a monthly income of $1,200 and rent of $600 obviously will have no extra income to pay any past-due taxes.
However, you may be asked to complete a financial form that shows you do not have any surplus income after paying necessary monthly living expenses. This form, IRS 433-A, can be found here.
Although it is rarely done, the IRS can garnish 15 percent of a senior’s Social Security for past-due income taxes. However, this garnishment will never happen without the senior being first notified. The IRS will almost never garnish pensions and other retirement income.
Tips on Applying for Uncollectible Status
Here are some guidelines and requirements for applying for CNC status:
- The financial information supplied must prove to the IRS that the individual does not have any surplus income after paying their necessary monthly living expenses and that they have no significant additional assets.
- Individuals may need to submit their bank statements along with this IRS financial statement and any other relevant financial documentation for review.
- The website TaxCure provides information on CNC (also called "hardship") status, including budget standards the IRS uses in determining whether a person qualifies for uncollectible status. Click here and here.
- If you are going to apply by phone, carefully prepare a budget ahead of time that shows expenses within those budget standards that consume all your money so it is clear there is no extra money with which to pay taxes.
- If applying by phone, the IRS collector might try to get you to say that you can pay something when you can’t. Review on the IRS website the suggested budget numbers and national standards for where you live. Do not underestimate your expenses, which many people do. If you fit within the criteria, you qualify for CNC status.
Once taxpayers are placed on CNC status, they will maintain this status for at least a year. In the case of retirees, the status will likely be indefinite since retirement income and Social Security are constant and most retirees will not be working in the future. If an individual’s account keeps its CNC status until after the statute of limitations on the debt runs out, usually around ten years, the IRS will be permanently prevented from collecting the debt.
If you are unable to work something out with the IRS over the phone, you can contact the Taxpayer Advocate Service (TAS). This free government service ensures that every taxpayer is treated fairly and understands his or her rights. The TAS is an independent organization within the IRS, headed by the National Taxpayer Advocate. Each state has at least one Local Taxpayer Advocate who is independent of the local IRS office and reports directly to the National Taxpayer Advocate.
To contact TAS, call (877) 777-4778 or see its website for a list of local TAS offices.
What About State Income Taxes?
Not all states have procedures in place to put persons on uncollectible status for past-due state taxes owed. Federal law protects Social Security, pension, disability and VA benefits from garnishment by states for taxes owed. Unfortunately, not all state taxing agencies will tell seniors that their income is protected from garnishment; instead, they continue collection efforts. (Click here for information on a law Oregon enacted in 2015 to put an end to this practice.)
If a senior’s bank account is garnished by a state tax collector, twice the amount of monthly Social Security deposited into the bank account is automatically protected from garnishment, no matter the source of funds in the account at that time. Federal banking regulations require a bank to determine an account into which Social Security is deposited and disregard any garnishment, including for past-due state taxes owed. If there are excess funds from exempt sources in the account, a claim of exemption would need to be filed with the state before the money could be released.
For more information, visit HELPS, a non-profit law firm formed to educate seniors and persons working with them about seniors' financial rights and to resolve tax, student loan and housing issues.