What qualifies as a hardship with the IRS?

The Internal Revenue Service (IRS) collected trillions of dollars in outstanding taxes last year, but there are still millions of Americans who have not yet paid their tax debt and are now officially behind on what they owe. When you owe taxes to the federal government, it can be a tough situation to handle, whether a job loss, a medical emergency or a tax bill that arrived at the worst possible time caused it. And, things can feel even more dire as the penalties and interest pile up. What many taxpayers don’t realize, though, is that the IRS isn’t always the unforgiving creditor it’s made out to be. 

While the agency does have some effective tools at its disposal to compel you to pay your tax bill, it also has a range of programs designed specifically for people who are genuinely unable to pay what they owe. Enrolling in one of these programs can pause collection activity, reduce your total debt or allow you to pay less than the original balance. The catch? You have to meet their definition of financial hardship, and that threshold is clearly outlined by the IRS.

So what exactly does the IRS consider a hardship, and how do you prove you qualify? Below, we’ll detail what you need to know.

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What qualifies as a hardship with the IRS?

The IRS defines a financial hardship as a situation in which paying your tax debt would prevent you from meeting basic living expenses. This isn’t a vague, subjective standard, though. The agency uses something called the collection financial standards, which is a set of national and local expense allowances for things like housing, food, transportation and healthcare. Your actual income is measured against those benchmarks to determine whether paying your tax debt would leave you unable to cover necessities.

There are a few specific programs that hinge on these hardship determinations. One is Currently Not Collectible (CNC) status, which the IRS can grant when your monthly income barely covers your allowable expenses, much less your outstanding federal tax bill. Once you’re placed in CNC status, the IRS temporarily stops collection efforts — meaning no more wage garnishments or bank levies — though interest and penalties continue to accrue, and the IRS will reassess your financial situation periodically.

Another hardship-based option is an Offer in Compromise (OIC), which allows qualifying taxpayers to settle their tax debt for less than the full amount owed. To be approved, you have to demonstrate that the full liability is genuinely uncollectable given your assets, income and expenses. The IRS rejects a significant share of OIC applications, so documentation matters enormously, whether that’s bank statements, pay stubs, medical bills, mortgage or rent records or any other evidence that paints a clear picture of your financial situation.

There’s also the possibility of penalty abatement for hardship, which won’t reduce the underlying tax debt but can eliminate some of the penalties that have built up around it. First-time penalty abatement is the most accessible route, available to taxpayers with a clean compliance history, while reasonable cause abatement applies when you can show that circumstances beyond your control — like a serious illness, a natural disaster or the death of a family member — prevented you from filing or paying on time.

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When to consider professional tax relief help

Navigating IRS hardship programs on your own is possible, but it’s rarely simple. The paperwork is detailed, the standards are strict and a single misstep in how you present your financial information can result in a rejected application or a repayment agreement that’s still more than you can afford.

That’s where tax relief companies can help. These companies employ tax experts who specialize in negotiating with the IRS on behalf of taxpayers, and for people with significant unpaid tax balances — generally $10,000 or more — working with a professional can meaningfully improve your odds of getting a favorable outcome. A qualified tax relief professional can evaluate which hardship program you’re most likely to qualify for, handle the documentation and communicate directly with the IRS so you don’t have to.

If you’re already behind on your taxes and watching the balance grow, getting a professional assessment sooner rather than later is worth considering. The IRS does have time limits on how long it can collect a debt, but it also has substantial tools at its disposal in the meantime, and working with an expert generally turns out better than taking the do-it-yourself approach.

The bottom line

An outstanding IRS tax debt doesn’t automatically mean financial ruin, but it does require action. The IRS has real programs for people facing genuine hardship, but the key is to understand which one fits your situation — and to present your case the right way. If the process feels overwhelming, working with a tax relief professional to prove your hardship could make a lot of sense. By taking this route, you may be able to better navigate your options and ensure that you’re making the right decisions for your tax debt.