Sometimes financially struggling taxpayers and those taxpayers receiving Social Security, Social Security Disability (SSDI) and Veterans Pensions find themselves owing past due federal income taxes they cannot afford to pay. Although notices from the IRS can be especially frightening, there are solutions.
If your income tax 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.
Seniors with especially low incomes can obtain Current not Collectible (CNC) status. You should have an experienced IRS Tax Attorney represent you.
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.
Through the Federal Levy Payment Program (FPLP), the IRS can garnish 15 percent of a senior’s Social Security for past-due income taxes.
2. Individuals may need to submit their bank statements along with this IRS financial statement and any other relevant financial documentation for review.
Once taxpayers are placed in Currently not Collectible ( 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.
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, Social Security Disability (SSDI) 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.
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.