When a taxpayer owes money to the IRS but is unable to pay in full, there are a number of options available to reach a resolution and prevent a bank levy or wage garnishment. Resolving tax debt involves completing IRS Form 433-A, 433-A (OIC), or 433-F, for most individuals. The form requires listing personal information, i.e. name, address, and Social Security number. It also requires a listing of assets owned, such as bank accounts, cars, real estate (like a primary residence), and certain liabilities. Lastly, the form requires a listing of monthly income and expenses in order to calculate what the IRS considers a taxpayer’s monthly ability to pay. If you have tax law concerns, don’t delay. Contact a Sacramento tax lawyer of NewPoint Law Group, LLP with your legal concerns.
IRS Form 433 Allowable Expenses
For many people who owe back taxes to the IRS, there is no excess income, and thus no ability to pay. However, the IRS has limits on the amount of expenses that a taxpayer may utilize for this purpose based on various national and local standards.
The IRS provides national standards for food, clothing, and other items as a monthly expense using the information derived from the Bureau of Labor Statistics (BLS). As of March 30, 2015, the standards for a household of one are $315 for food, $32 for housekeeping supplies, $88 for apparel and services, $34 for personal care products and services, and $116 for miscellaneous expenses, for a total of $585. The total amount increases for each household member: $1,092 for a household of two, $1,249 for a household of three, $1,513 for a household of four, an $378 for each household member in excess of four.
As a separate line item, the IRS provides national standards for out-of-pocket health care in the amount of $60 for taxpayers under age 65, and $144 for taxpayers age 65 and older.
If more money is spent on any of these items than allowable under the standards, the IRS may require documentation to substantiate the excess expenditures as necessary living expenses. Miscellaneous expenses cannot exceed the standard amount.
In addition to the national standards, the IRS provides local standards for transportation, housing, and utilities. For transportation, the maximum allowable ownership cost is $517 for one car, or $1,034 for two cars. Note that a single taxpayer is generally allowed only one automobile. Alternatively, taxpayers with no vehicles are allowed a public transportation expense in the amount of $185.
Besides vehicle ownership costs, the IRS allows for operating costs based on the county of residence by using the Metropolitan Statistical Area (MSA), or Census Region if the county is not provided for. In California, there are three MSAs: San Diego (consisting of San Diego County), Los Angeles (consisting of Los Angeles, Orange, Riverside, San Bernadino, and Ventura Counties), and San Francisco (consisting of Alameda, Contra Costa, Marin, Napa, San Benito, San Francisco, San Mateo, Santa Clara, Santa Cruz, Solano, and Sonoma Counties). For one car, the allowable monthly operating costs are $301, $295, and $306, respectively. For taxpayers living in any other county in California, the allowable operating cost of one vehicle is $236 per month.
The local standards for housing and utilities are provided for each county in the United States. In California, the maximum monthly allowance varies from a low of $1,260 in Modoc County for a household of one, to a high of $4,370 in Marin County for a household of five or more. The exact allowable amount is based on county of residence and household size.
Although the IRS exerts influence over certain household expenses, there are other expenses that can be utilized in order to reduce a taxpayer’s monthly payments. For example, taxpayers can list expenses like domestic support obligations, union dues, back taxes, and child care.
It may appear counter-intuitive, but it is often advisable to stay current on ongoing tax liability by paying estimated tax payments for the current year. There are several advantages to taking this approach, including preventing new taxes from tacking on to the old tax debt, and reducing the minimum monthly payment.
Rely on Our Sacramento Tax Attorneys with You in Mind
Please contact a Sacramento tax attorney of NewPoint Law Group, LLP at 800-358-0305 if you need help resolving your back tax liability, or have other tax law-related issues.