What is “Financial Hardship” and what does it have to do with me?

by Victory Tax Solutions on March 29, 2012 in Blog

Financial Hardship is determined when a person is unable to pay what they owe, often because of circumstances out of their control (or circumstances that were once within their control, but have escalated too much). People arrive in situations of financial hardship for many different reasons, including job loss, unemployment, or health emergencies. If a person or family is suffering financially and are unable to pay their taxes, they can apply for financial hardship status if they are willing to prove it. There are specific qualifications, however.

Proving your hardship

Just like most appeals to the government, you will have to prove your point. Along with an application, you will need to provide information on all of your monthly budget components, including income, food, rent/mortgage, transportation, utilities, personal care, and all other expenditures—proving that your spending habits are above the national spending costs per category. If there is a specific reason you are struggling with financial hardship, you can also include proof of that—for example, a doctor’s note if you have had a medical emergency; or copies of unemployment checks if you have lost your job. In general, hardship is based on all the facts and circumstances related to a taxpayer’s case. No single reason will permit hardship.

“I qualify for “Financial Hardship”—how can it help me?”

Well, if you have tax debt and feel you cannot pay, you can look into applying for financial hardship status. If you have student loans, you can apply to get them deferred. If you know you are unable to pay your debt now and will not be able to pay it in the future, then you can apply for “hardship” or “currently not collectable” status. If your assessment is accurate, you will most likely be granted your request. Being granted “financial hardship” status will not abolish what you owe, but will protect you from further penalties.

Something to keep in mind: What the IRS deems financial hardship may not be what you consider hardship—are you unable to pay for the things you need or are you unable to buy extra things you want? If you think you may qualify for financial hardship, it may be wise to seek the advice of a tax professional.

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