Disability and IRS Hardship Status

Disability can put a major blow on one’s finances. There are medical bills to worry about, insurance companies aiming to deny coverage, lost income due to inability to work, and the IRS breathing down your neck. Contrary to common misconception, however, the IRS will agree to stay out of your way while you’re tending to your disability if you can show that insistent collection of back taxes and penalties from you will cause you genuine financial hardship.

Different people have different perceptions of what financial hardship is, but the IRS, as always, has rules to quantify its standards. To be granted a “currently not collectible” status, you have to prove that further collection would keep you from paying for housing, utilities, transportation, food, clothing, and education. Being disabled will also mean you have to present the IRS a record of your hospital bills. It’s highly recommended to consult a local tax lawyer who can assist you in filing all the necessary paperwork and documentation to get qualified for a hardship status.

Note, however, that getting classified as currently not collectible won’t free you from your tax obligations. Your tax interests will continue to accrue and IRS will set a certain time to revisit your account in the future. Keep in mind, though, that while the benefit is temporary, it will buy you some time to treat your injury and think more clearly of other viable solutions.

 

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