IRS Collection Financial Standards: How the IRS Determines What You Can Pay
When negotiating an IRS payment plan or Offer in Compromise, the IRS does not just take your word for what you can afford. It applies specific National and Local Standards to determine your allowable monthly expenses — and anything above those limits does not count. Knowing these standards is essential for minimizing your payment.
National Standards vs. Local Standards
The IRS uses two types of expense standards. National Standards apply nationwide for food, clothing, out-of-pocket healthcare, and personal care products. Local Standards apply by county or metropolitan area for housing, utilities, and transportation. Los Angeles County has its own Local Standard allowances that are generally higher than rural areas, reflecting the area's higher cost of living.
National Standards for Food and Personal Expenses
The IRS sets a monthly allowance for food, clothing, and personal care based on family size. For 2024, a family of four is allowed approximately $2,100 per month for food, clothing, and personal items. These amounts are fixed regardless of your actual spending.
Local Standards for Housing and Utilities
For Los Angeles County, the IRS housing and utilities standard for a family of four is approximately $3,200–$3,800 per month depending on county. This is the maximum the IRS will allow for rent, mortgage, utilities, and household maintenance. If your actual housing costs exceed this, only the standard amount is allowed — making it critical to document other expenses that are separately allowable.
Transportation Standards
For transportation, the IRS allows one or two vehicles per household depending on size. The standard covers vehicle ownership/lease costs and operating expenses (gas, insurance, maintenance). For Los Angeles, the 2024 operating expense standard is approximately $339 per vehicle per month. Actual loan or lease payments are allowable separately if they do not exceed the ownership standard.
Expenses Above IRS Standards
If your actual expenses exceed IRS Standards, those excess amounts are disallowed in the payment calculation. For example, if your mortgage is $4,500 but the LA County standard is $3,400, the IRS only credits you $3,400. However, you can argue for conditional expenses above standards — healthcare costs not covered by insurance, specialized education, and certain other necessary expenses with documentation.
Frequently Asked Questions
What if my actual rent is higher than the IRS standard?
Only the standard amount is allowed. If your rent exceeds the standard, you may want to factor this into your overall financial strategy — either negotiating based on available income or considering whether your actual expenses truly require housing above the standard.
Can I include my car payment in my IRS expenses?
Yes, up to the IRS ownership standard. If your actual car payment is $500 and the standard is $600, you can claim $500. If your car payment is $800 and the standard is $600, only $600 is allowed.
Are private school tuition expenses allowed?
Generally no, as a conditional expense. However, if the expense is necessary and there is no public school alternative, or for special needs education, the IRS may consider it case by case.
What expenses are always allowed above the standards?
Healthcare expenses above the National Standard are allowed if you document actual costs. Childcare necessary for employment is allowed. Court-ordered expenses (alimony, child support) are allowed. Student loan minimums may be allowed.
Where can I find current IRS National and Local Standards?
Current standards are published at IRS.gov under Collection Financial Standards. They are updated annually, typically in March or April.
Do California-specific expenses affect IRS calculations?
The IRS Local Standards account for geographic cost differences including California's higher housing costs. However, California state income tax payments are a separate deductible expense that reduces disposable income for federal IRS purposes.
IRS Collection Financial Standards: How the IRS Determines What You Can Pay Services in Los Angeles
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