Economic Hardship: Getting a Wage Levy Released When You Cannot Pay the Bills

The exempt amount in Publication 1494 is the same for everyone with your filing status and family size. Your rent is not. Neither is your car payment, your insulin, or the cost of getting to work. For a lot of people, the table amount is simply not enough to live on.

Congress anticipated that. IRC 6343(a)(1)(D) says the IRS shall release a levy if it has determined that the levy is creating an economic hardship due to your financial condition. This is one of the most important rules in the wage levy world, and one of the least used.

What “economic hardship” means

Treasury Regulation 301.6343-1(b)(4) defines it. The condition applies if satisfying the levy, in whole or in part, “will cause an individual taxpayer to be unable to pay his or her reasonable basic living expenses.” The IRS decides what is reasonable, and the regulation says that will vary with your circumstances. It also says unique circumstances do not include maintaining an affluent or luxurious standard of living.

Two points jump out. First, this is for individuals. Second, the test is your basic living expenses, not your lifestyle. Groceries count. A boat payment does not.

What the IRS considers

The regulation lists the information the IRS will consider, including:

• Your age, employment status and history, ability to earn, number of dependents, and whether you are someone else’s dependent.
• Amounts reasonably necessary for food, clothing, housing (including utilities, homeowner insurance and dues), medical expenses (including health insurance), transportation, current tax payments, alimony, child support or other court-ordered payments, and expenses necessary to produce income, such as union dues or child care that lets you work.
• The cost of living where you live.
• The amount of property exempt from levy that is available to pay your expenses.
• Extraordinary circumstances such as special education expenses, a medical catastrophe or a natural disaster.
• Any other factor you bring to the IRS’s attention.

That last item is an invitation. If something about your situation makes your expenses higher than normal, say so, and document it.

The good faith requirement

The regulation adds a condition: you must act in good faith. Its examples of bad faith are falsifying financial information, inflating expenses and failing to fully disclose assets. Be accurate. A hardship claim built on padded numbers can sink the whole request.

How the IRS processes a hardship claim

IRM 5.11.2.3.1.4 tells IRS employees how this works in practice. The decision requires a financial analysis, which means a Collection Information Statement with enough information to confirm the levy is leaving you unable to meet necessary living expenses. Treasury Regulation 301.6343-1(a) lets the IRS require reasonably necessary supporting documentation.

The IRM also states that where the analysis shows you merit full or partial release, you have “a statutory right to enough relief to end the hardship.” Not a little relief. Enough to end it.

The IRM’s own example is worth knowing. A taxpayer says he cannot pay his family’s necessary living expenses with the exemption allowed from his weekly check. He completes a financial statement over the phone. The analysis shows he can pay $400 a month, so the IRS faxes a partial release to the employer. That is how it is supposed to work: phone call, numbers, release.

What the IRS may not demand first

Here is a rule many taxpayers never hear. IRM 5.11.2.3.1.4 says that when the IRS determines the levy is creating an economic hardship, employees must not “refuse, delay or understate the release amount as a means to secure other compliance, e.g., missing tax returns.” It goes on: do not condition relief of the economic hardship upon receiving the delinquent returns. These are separate collection issues.

So if you have unfiled returns, the IRS can and will pursue them. But it is not supposed to hold your hardship release hostage while it does. Know that rule before you call.

Full or partial release

Hardship release does not have to be all or nothing. If the full levy causes hardship but a smaller levy would not, IRM 5.11.2.3.1.4 directs the IRS to release only enough to prevent the hardship. On Form 668-D, the IRS can release wages below a set dollar figure so you keep enough to live on, while anything above that still goes to the IRS. See partial release of a wage levy.

If your numbers show you cannot pay anything, the account may be closed as currently not collectible. IRM 5.11.2.3.1.4 says that when a case is closed as a hardship, all open levies should be released, and IRC 6343(e) requires release of a wage levy as soon as practicable once the IRS agrees the tax is not collectible. See Currently Not Collectible and wage levies.

Building your hardship file

1. Income. Your last several pay stubs, showing gross pay, deductions and the levy.
2. Housing. Lease or mortgage statement, utility bills, renter or homeowner insurance.
3. Transportation. Car payment, insurance, and what it costs to get to work.
4. Health. Insurance premiums and out-of-pocket medical costs, with proof.
5. Court-ordered payments. Support orders and proof you are paying.
6. Everything else. Child care that lets you work, current tax payments, anything extraordinary.
7. Bank statements. The IRS will want to see where the money actually goes.

The IRS financial statement forms are Form 433-F and Form 433-A. The IRS also compares your expenses to its Collection Financial Standards, which is where many hardship claims get contested. Document anything above the standards and explain why it is necessary.

If the IRS says no

IRM 5.11.2.3.1.4 says that when the analysis does not support release, the IRS documents its reasoning and tells you. You may appeal through the Collection Appeals Program. The same section points to the Taxpayer Advocate Service as another avenue in the right case.

Can you get back money already taken?

Sometimes. IRC 6343(d) lets the IRS return levied money in certain cases, including when the return would be in the best interests of both you and the government. IRM 5.11.2.4.1 gives an example where a financial statement shows the levy created an economic hardship from the day it was issued, and it says that generally it will be in the government’s best interest to return such payments. It also notes the exception: proceeds received before you asked for release may not come back if you ignored IRS contact attempts without reasonable cause. A written request has a deadline, generally two years from the levy. See getting levied wages back.

For a look at how Currently Not Collectible status works from my firm’s main site, see Currently Not Collectible at GetIRSHelp.com.

Hardship release is a right, not a mercy. Bring the numbers, and ask for enough relief to end the hardship.