How much the IRS lets you spend if you owe back taxes

In all three the IRS measures your ability to pay as income minus allowable living expenses. And 'allowable' means the IRS's own standards (Collection Financial Standards), not your actual spending: • National Standards — food, clothing, household supplies, personal care, miscellaneous. Given by household size automatically, no receipts required. • Out-of-Pocket Health Care — a fixed amount per person (higher for 65+). • Local Standards: Housing & Utilities — depends on your COUNTY and household size. The lesser of your actual amount and the county cap is allowed. • Local Standards: Transportation — vehicle ownership cost plus operating cost by region, or public transit. Amounts above the standards (an expensive car, luxury housing) generally aren't allowed. The same standards drive the personal-bankruptcy means test, administered by the US Trustee Program at the Department of Justice. Bottom line: the less disposable income you have after allowable expenses, the softer the terms — up to CNC or a meaningful reduction via OIC. The calculator above is a rough guide; the precise figure is computed on Form 433-A/433-F with documentation.