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Personal Finance Tax Relief

What Is Tax Relief?

Updated Feb 09, 2024   |   10-min read

Tax relief refers to various programs and initiatives designed to help taxpayers settle or reduce their tax bills and tax-related debts. These are available to both individuals and businesses. However, the programs you’re eligible for will depend on your status with the IRS, the amount of your tax debt, and other factors.

Use this guide to learn more about tax relief and what options you may have.

What are the different types of tax relief?

Tax relief can come in many forms. It can be by way of tax deductions, credits, and exclusions (if you’re up-to-date on your tax bills), or, if you’re behind on your taxes, it may mean a repayment plan or a lump-sum payment lower than the amount owed.

Click the option below that best fits your situation to see your tax relief options:

Tax relief if you are currently up to date on tax payments

If you’ve paid all your taxes and are filing your tax returns for this year, you may be able to take advantage of some tax deductions, tax credits, and tax exclusions. These either reduce your taxable income or your actual tax bill, depending on which ones you’re eligible for.

Tax deductions

A tax deduction allows you to reduce your total taxable income and, thus, the taxes you owe on those earnings.

There are tax deductions for various items, including:

  • The interest you pay on your mortgage or student loan
  • Property taxes paid on your home or other properties
  • Sales taxes
  • Charitable donations
  • Health insurance premiums
  • Business or work-related expenses

There is also a standard tax deduction that all taxpayers qualify for. This deduction is $12,400 for a single filer and $24,800 for a married couple filing jointly. (To claim these, you can’t claim the itemized deductions listed above).

Here’s an example of how the standard deduction would work. Let’s say you made $60,000 this year. As a single person, you qualify for the $12,400 deduction. That reduces your taxable income from $60,000 to $48,000, meaning a reduced income tax of almost $2,500 ($13,000 vs. $10,560).

DetailAmount
Gross income$60,000
Standard deduction$12,400
Taxable income after deduction$47,600
Income tax before deduction (22% bracket)$13,000
Income tax after deduction (22% bracket)$10,560

Tax credits

Tax credits work differently than a tax deduction. Instead of reducing your taxable income, these reduce your actual tax bill—the total amount you owe the government for the year.

If you have a child and are eligible for the dependent tax credit ($2,000 per child), you’d subtract that $2,000 from your final tax bill. If you owed $10,000 in annual taxes, for example, the credit would reduce that to $8,000—a considerable amount of savings.

There are tax credits for:

  • Having a child or other dependent
  • Adopting a child in that tax year
  • Being elderly or disabled
  • School-related expenses
  • Childcare costs
  • Contributing to a retirement plan
  • Installing a solar energy system

Tax exclusions

Tax exclusions are similar to deductions in that they allow you to reduce your taxable income. The difference here is that exclusions let you leave off an entire income stream from your taxable earnings.

A good example is company-sponsored healthcare plans. Though these are often considered a “benefit” and part of your pay as an employee, the costs contributed by your employer do not count toward your taxable income. This is one of the more common tax exclusions.

Other tax exclusions include:

  • Some types of income earned in other countries
  • Disability payments
  • Payments for natural disaster relief
  • Rent or housing subsidies

Tax relief if you are currently behind on tax payments

If you haven’t yet paid your taxes or owe back taxes for previous years, there are other forms of tax relief that might be able to help. There are options to repay your debt in full (over time) or settle your debts for less than you owe. See below for the options that are currently available.

Fresh Start Program

Fresh Start is an IRS program designed for taxpayers behind on their tax bills. The program lets you make an Offer in Compromise, which allows you to settle your debt for less than you technically owe. The amount the IRS will accept with these offers depends on your income, assets, and household expenses.

If approved, you’ll have two options for making your payments. You can make a lump sum payment upfront (at least 20% of the offer) and then pay the rest off within five months, or you can make a single payment with your offer and pay the remaining balance off monthly over the next six months to two years.

Offers in Compromise are generally considered difficult to get approved. The IRS offers a pre-qualifier tool that can help you understand if it may be an option in your specific case. To apply, you’ll need Form 656-B.

If the 32-page document has you stressed, hiring a tax relief company is an option. They’ll work with the IRS on your behalf and can help you determine an appropriate amount to offer. Below are a few companies you might consider:

anthem_logo_125_web-01

Anthem Tax Services

  • Free consultation by visiting its website or calling 818-797-7234
  • 100% money-back guarantee if you aren’t in a better position than when you started
  • Minimum debt requirement of $10,000

Community Tax

  • Free consultation by visiting its website or calling 818-519-2184
  • Claim to have resolved over $750 million in tax liabilities

Read more: Do tax relief companies really work?

Other forms of tax relief

Beyond the Fresh Start program, there are other routes you can explore, too. Though these won’t reduce the total amount you owe, they can make it easier to pay off your loan—either by waiving some fees or letting you spread your payments out over time.

Installment agreements

The first option is an installment agreement—also called a payment plan. These let you repay your tax debt over a longer time frame, hopefully making them easier to manage financially.

Here’s what you need to know about installment agreements:

OptionsEligibility details
Short-term payment plan (< 120 days)Individual taxpayers owing $50,000 or less can apply online
Long-term payment plan 1 (> 120 days)Individual taxpayers owing $100,000 or less and businesses owing $25,000 or less can apply online
Long-term payment plan 2 (> 120 days)Individual taxpayers owing $100,000 or less and businesses owing $25,000 or less can apply online

Source: https://www.irs.gov/payments/payment-plans-installment-agreements

Short-term payment plan

For individual taxpayers, this $0 fee plan supports various payment methods: bank, online, check, money order, or debit/credit card. Those owing $50,000 or less can apply online.

Long-term payment plan option 1

Covers both individuals and businesses with a $31 to $107 setup fee. Payments are through monthly automatic debits. Eligibility requires owing $100,000 or less (individuals) or $25,000 (businesses).

Long-term payment plan option 2

This plan, for individuals and businesses, has a $149 to $225 setup fee. Apply if you owe $100,000 or less (individuals) or $25,000 (businesses). Payment options include bank account, online, check, money order, or debit/credit.

Committing to a payment plan can help make your payments more manageable to effectively pay back your debt.

If you owed $30,000, for example, and applied for an installment agreement spread out over five years, you could repay your debt with just a $500 per month payment ($30,000 / 60 months). This agreement would likely be much more manageable than repaying that $30,000 all at once.

Again, if applying for this type of payment plan seems daunting, a tax relief professional can help. See our list of the best tax relief companies to get started.

Penalty relief or interest abatement

If you’ve been hit with lots of penalties, administrative fees, or high-interest costs for your overdue tax bills, there’s a chance you may be able to have those forgiven. To qualify, you’ll need to have what the IRS calls “reasonable cause” for why your tax debts went unpaid. The agency offers a house fire, death in the family, or natural disaster as potential examples. If you’re not sure you’d qualify, there’s more detail here.

A tax relief company can help you gauge whether penalty relief or abatement might be available in your specific case. They might also improve your chances of seeking one successfully.

Should I work with the IRS directly or hire a tax relief firm?

That’s up to you. The IRS makes all its forms and tools publicly available, and you can contact the agency both online and via phone, so it’s possible to handle your tax relief efforts entirely on your own.

Often, though, the process can be quite complex, and some taxpayers might prefer professional help to ensure the proper steps are taken to maximize their chances of success. Here’s a quick look at the pros and cons of both sides:

Pros and cons of working directly with the IRS

Pros

  • No costs

  • Can be done on your own time

Cons

  • The process can be complicated and confusing

  • Mistakes could be costly

  • Could lessen your chance of success due to inexperience

Pros and cons of hiring a tax relief company

Pros

  • Professional guidance

  • Less work on your part

  • Potentially a better chance at success

  • Lots of experience

Cons

  • Risk of scams

  • Added costs

  • No guarantee of relief

If you do use a tax relief professional, be wary. According to the Federal Trade Commission, there are many illegitimate tax relief companies out there, which could only increase your financial losses. Make sure you work with a reputable and experienced company and thoroughly vet the firm before giving away any personal information.

Using our guide to the best tax relief companies can help.

What happens if I don’t repay my tax debts?

Failing to pay your tax bills can have serious consequences. First, it will lead to additional penalties and more interest costs, only adding to your total owed balance over time.

The IRS can also garnish your wages (taking part of your paycheck every month) or file levies and liens against your property. That could put your car, home, and other assets at risk, and it could hurt your credit significantly. In some cases, you could even have your passport or driver’s license revoked.

>> Read More: Does IRS debt go away?

Recap of your tax relief options

If you’re behind on your taxes or just looking to reduce your tax burden a bit, there are plenty of options to explore.

ReliefHow it helpsWho can help
Tax deductionsLowers your taxable incomeYour tax preparer
Tax creditsLowers your actual tax billYour tax preparer
Tax exclusionsExcludes a portion of your income from taxationYour tax preparer
Fresh Start programLets you settle your tax debt for less than you oweIRS or tax relief company
Installment agreementsLets you pay off your tax bills over timeIRS or tax relief company
Penalty relief and interest abatementReduces or waives fees and interest costsIRS or tax relief company

If you’re unsure where to start, consider one of our picks for the best tax relief companies. Most, if not all, offer a free consultation to discuss your situation and determine which path forward is best.

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