Retirees: Legal Ways to Reduce or Even Eliminate IRS Tax Debt

For many retirees, taxes can quietly become overwhelming especially when living on a fixed income, dealing with health costs, or caring for a spouse.

The good news? The Internal Revenue Service (IRS) offers several relief options that can reduce what you owe or pause collections entirely.

What the IRS Can (and Can’t) Do

Let’s keep it simple:

• Can remove penalties (in certain cases)

• Can reduce total debt through a settlement

• Can pause collections if you truly can’t pay

• Rarely forgives the actual tax amount

• Almost never removes interest (unless it caused delays)

Why Retirees May Qualify More Easily

Older adults don’t get special programs, but they often have stronger cases because of:

• Fixed income (like Social Security)

• High medical expenses

• Limited assets

The IRS looks at:

• Your filing history

• Why you fell behind

• Your current financial situation

Main IRS Relief Options

Here are the most common ways retirees reduce tax debt:

Penalty Relief

• First-time abatement if you’ve been compliant before

• Reasonable cause (illness, caregiving, emergencies)
   

Offer in Compromise

• Settle your debt for less than what you owe

• Works if your income/assets can’t cover the full balance
   

Currently Not Collectible (CNC)

• IRS pauses collection

• Used when basic living expenses leave no room to pay
   

Payment Plans

• Stops aggressive collection actions

• Helps reduce additional penalties over time

Common Questions Retirees Ask

Can the IRS take Social Security?

Yes, but only up to 15%, and not from SSI.
 

Does age alone qualify you?

No, but health issues and limited income can support your case.
 

Will a payment plan stop penalties?

It can reduce new penalties and stop most collection actions.

What Is the Tax Hardship Center?

The Tax Hardship Center helps retirees:

• Review IRS records and financial situation

• Set up realistic payment plans

• Apply for penalty relief

• Prepare settlement offers

• Catch up on unfiled tax returns

This is especially helpful if you haven’t filed in years and need to restart the process.

How First-Time Penalty Relief Works

You may qualify if:

• You had no penalties in the past 3 years

• You filed all required returns (or requested an extension)

Best for situations like:

• Medical emergencies

• Moving

• Caregiving responsibilities

When penalties are removed, interest tied to those penalties is also reduced, lowering your total balance.

What You Should Do First

Before choosing any option, gather:

• Income details

• Asset information

• Medical expenses

This helps determine the best relief path for your situation.

-

You may have access to support you didn’t know about. Find out more here!