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What is Income Tax Relief?
Income tax relief, also known as income tax debt relief, is any legal short-term or long-term solution offered by individuals or a government income tax agency to settle income tax debt. Income tax debt refers to monies owed to the government tax agency, such as the Internal Revenue Service (IRS) in the United States, originating from any current or past tax returns. Income tax debt may include income tax owed, combined with any accumulated interest and penalties.
Short-term solutions for income tax relief include borrowing from a family member or a friend; having an income tax relief sale, meaning selling any valuables for cash or liquidating; or taking out a short-term personal loan. If these options are not available, income tax relief laws may allow the government tax agency to offer a number of long-term solutions. In the US, under income tax relief law, taxpayers can apply for an Offer in Compromise (OIC) or an IRS installment agreement. Tax relief law also allows for a permanent solution to income tax debt called "tax bankruptcy."
An OIC can provide tax relief for taxpayers who cannot pay their tax debt in full or if an installment agreement is not an option. An Offer in Compromise is an agreement between the IRS and a taxpayer that resolves the taxpayer’s debt. There is a fee for filing, but in some cases it may be waived. With an OIC, the IRS can choose to settle the taxpayers debt by accepting less than the full payment if there is doubt as to liability, doubt as to collectibility, if the collection of the tax would create an economic hardship, or if it would be unfair and inequitable.
An IRS installment agreement, also called a payment option, payment plan, or payment agreement, is an agreement between the IRS and the taxpayer to make payments on taxes owed. Taxpayers will be charged a fee to start the installment agreement as well as interest and penalties. Interest and penalties may be minimized of the taxpayer is able to resolve his tax debt immediately or in a few of months. Taxpayers who fall under a certain threshold in combined tax, penalties, and interest are eligible to use the Internal Revenue Services’ Online Payment Agreement (OPA).
In the case of tax bankruptcy, taxpayers must contact a tax attorney to assist with the process. In general, if taxes are old enough, they are dischargeable under the Chapter 7 bankruptcy code.
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![Individuals who struggle to pay their income tax debts may benefit from some form of income tax relief.]()
By: jrwassermanIndividuals who struggle to pay their income tax debts may benefit from some form of income tax relief.
Discussion Comments
@SkyWhisperer - I would not advise anyone to borrow from family members for tax relief help! This is a sure prescription for ruining a relationship – unless that’s your intention of course.
The IRS is generally willing to work with you on making payments through a payment plan or something like that, although as the article points out you will pay interest.
But it’s far better than being in hock to your relatives. It’s also quite embarrassing to approach them as well. I would exhaust all other options before doing something like that. I'd even sell stuff online if I had to.
@hamje32 - The best approach to income tax relief in my opinion is to make sure that you know what you’re paycheck withholding tax rates should be, and have your paycheck modified accordingly.
Having more on your paycheck may make you feel richer, but you will end up paying at the end. Last year I almost had to pay penalties because I wasn’t withholding enough, but I found a few more deductions that saved me.
This year we’ll have to see how things turn out. I am definitely going to start being more tax savvy. That’s the only way to build real long term wealth in my opinion.
I never heard about OIC. I think, however, you would really have to prove that you were in dire financial straits before the IRS would grant you this option.
On the TV I keep seeing ads from these so called “tax professionals” who try to get you tax relief from the IRS. They talk about getting you settlements of more than half of what you owe. Perhaps they are using the OIC, I don’t know.
But in the scenarios outlined in television usually they describe $10,000 or more in back taxes. I don’t suppose it would be worth it if you owed less.
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