IRS expenses
IRS expenses, also known as the Collection Financial Standards, are standardized expense allowances created by the Internal Revenue Service (IRS) to determine a taxpayer’s ability to pay delinquent tax liabilities. These standards are used by the IRS when evaluating installment agreements and other collection alternatives. They are also incorporated into bankruptcy proceedings, particularly in Chapter 7 means testing and Chapter 13 disposable income calculations, because federal bankruptcy law refers to the IRS standards when determining allowable living expenses.
The IRS expenses are divided into national standard and local standards. National standards apply uniformly across the United States and cover basic living expenses, such as food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous expenses. The IRS also sets a national allowance for out-of-pocket health care expenses. Local standards vary by geographic location and consist of (1) housing and utilities standards, which depend on the taxpayer’s county and state; and (2) transportation standards, which include both ownership and operating costs based on region.
The standards are calculated based on family size with allowable expenses increasing as the number of household members increases. Taxpayers whose actual expenses exceed the standard amounts must provide documentation demonstrating that the higher costs are necessary and reasonable.
IRS expense standards serve as guidelines, not automatic entitlements. In tax collection matters, the IRS may accept actual expenses higher than the standards if the taxpayer substantiates that the additional costs are essential for health, welfare, or income production.
[Last reviewed in November of 2025 by the Wex Definitions Team]
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