Hardship, COVID, and Struggling Taxpayers

If you made early withdrawals from a retirement savings account, see how to add Form 8915 to your 2022 Return. If you used Form 8915-E with your 2020 Return and 8915-F on your 2021 Return for COVID-related withdrawals, eFile will help report your repayments on your 2022 Return.
Can't Pay
Taxes?

If you owe taxes to the IRS, depending on the degree of economic hardship that you are faced with, you may be eligible for adjustment to payments on back taxes, deferment of collection action, or leniency in regard to the default status of payment agreements (i.e. offer in compromise). Lean on this page if you are struggling with tax payments to the IRS.

At eFile.com, we will help you prepare and e-file your 2022 Tax Return. The eFile app will also help find any tax credits and tax deductions you qualify to claim on your return which could help you during these difficult financial times. eFileIT now or by Tax Day, April 18, 2023.

Taxes and Hardship

There are many events and situations which can make filing and paying taxes difficult. It is important to tax plan as much as possible to be prepared for any changes or events that may affect your situation. At the very least, file or e-file a tax extension by Tax Day in order to give yourself more time to file, but not more time to pay. We at eFile recommend preparing your return to see, in real time, if you owe taxes before you worry about paying your tax liability. Estimate your 2022 Return now or sign up for a free eFile account here. Did you know there is no penalty for filing late if you are due a tax refund? However, file as soon as possible and claim your refund - it's your money and may help with your situation. You can only e-file 2022 Returns until October 16, 2023.

While there is a tax penalty when one takes an early withdrawal from a qualified retirement plan, the IRS may waive or reduce this penalty if it is caused by hardship via the Form 8915 - eFileIT

During the COVID-19 Pandemic, many taxpayers faced hardship and may have claimed unemployment benefits for the first time. Additionally, during 2020, taxpayers may took an early withdrawal or distribution due to hardship caused by COVID-19. For 2020 only, the IRS provided leniency for the early withdrawal penalty for up to $100,000 and is allowing taxpayers to pay this back over three years. In 2020, the form used was the Form 8915-E.

Early withdrawals due to COVID in 2021 were not treated similarly for 2021 Returns. However, if you faced hardship during 2021 or 2022 for other reasons, you may be able to claim this and have the penalty reduced on your early withdrawal.

Keep up with federally declared disaster areas which may be eligible for this penalty reduction. Examples include hardship due to hurricanes or other storms.

Generally, the IRS considers financial or economic hardship when a taxpayer shows that they cannot pay or is struggling to pay basic living expenses. See financial standards for 2022 for an idea of this. If you are unable to spend around $800 on basic living expenses, such as food, housekeeping, and services, you may be eligible to claim hardship.

What to Do When You Can't Afford Taxes

The best thing to do when you cannot afford to pay your tax bill is to file a return or tax extension and pay as little or as much as you can - or, pay nothing. At the very least, prepare and e-file a return or extension so you can eliminate the late filing tax penalty as it is ten times higher than the failure to pay penalty. See how to e-file a free tax extension on eFile.com.

The IRS does not consider life changes or other difficult situations to be facing hardship. A change of marital status or loss in the family generally does not qualify as making you unable to pay your taxes or file a return in the view of the IRS. You can elect not to pay any of your taxes with your return or you can look into an IRS payment plan.

Here are other life situations that affect your taxes:

  • Job Loss: If you have been the victim of outsourcing or downsizing during these turbulent economic times, learn about job loss tax adjustments and get possible tax relief. For example, you can set up a health savings account (HSA), make tax-deductible contributions, and withdraw the money tax-free for qualified medical expenses (this is available to you even if you did not lose your job). 
  • Job Searching: Deductible job search expenses have been eliminated as the standard deductions increased. You might be able to ask an employer to reimburse certain expenses.
  • Bankruptcy: Bankruptcy and insolvency can be financially draining for many people. It is important to know the tax ramifications of bankruptcy or insolvency, such as reporting forgiven debt on your tax return if you receive Form 1099-C, Cancellation of Debt, from the creditor or lender that forgave the debt. There are some circumstances in which the canceled debt may be excluded from your taxable income, so be sure and look into this before you report it on your tax return.
  • Divorce and Separation: A life-altering event such as separation or divorce has many tax implications. If you received alimony that is in a divorce or separation agreement finalized on December 31, 2018 or later, you can not deduct the alimony on your tax return, but it must be reported. The Tax Cuts and Jobs act eliminated the deduction of alimony on tax returns from 2019-2025. The eFile app will help you report your alimony as the payer or payee and figure out if it can or can't be deducted based on the information you provide.
  • Marriage: If you got married in 2022, congratulations! Getting married is a big step in your life and will also impact your tax return. Take a look at some important marriage tax information and details when planning for or preparing your tax return now that you are a married person. The first thing you need to do when preparing your 2022 Tax Return is to select a filing status; you can only file as married filing jointly or married filing separately. Use this free STATucator to determine your filing status now.
  • Child Tax: Did you have a child in 2022? Congratulations on the new addition to your family! There are many important taxes related to children and dependents, such as the new Child Tax Credit, the Child and Dependent Care Tax Credit, and tax deductions on college savings accounts. Determine if your child is eligible to be claimed as a dependent and what dependent credits you might qualify for using the free DEPENDucator tool here on eFile.com.
  • Tax Withholding: Do you expect a tax refund next tax season? If so, why wait until then if you could get this refund money earlier? In the first 6 months of 2022, the IRS issued over 96 million 2021 Tax Refunds and the average refund check was $3,121. That means that every month, most taxpayers pay an average of $260 too much in taxes. Are you one of them? You might withhold too much tax from your paycheck. Remember the time value of money: money now is worth more than the same amount of money in the future. Learn how to adjust your paycheck withholding on your Form W-4.
  • Tax-Free Income: Are you sure that you have considered all your tax-free income options? Learn about sources of income that the IRS cannot tax, such as child support and life insurance benefits.
  • Estimate Your Taxes: An essential component of tax planning is using a tax calculator to assess your tax credit, deduction eligibility plus estimate your taxes before it's time to file your tax return. Click the link below to start estimating your 2022 Taxes now. To get a complete idea of your taxes, complete and e-file your 2022 Tax Return on eFile.com.

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