If you're one of the millions of Americans who are behind on federal taxes, you may be wondering about tax relief services. While tax debt is a serious issue, you generally don't need to hire a professional representative to get relief. In fact, doing so can add hundreds or even thousands of dollars to your bill.
If you've fallen on hard times, it's almost always cheaper to work out a payment plan directly with the IRS or your state tax agency.
What are tax relief services?
Definition and overview
A tax relief service is a company that can help you make a plan to catch up on back taxes by communicating with the IRS on your behalf. If you owe the IRS, hiring a professional may seem like the smartest option — but it's costly and often not necessary.
"I think some of these companies are preying on folks a little bit, and that they're so afraid of the IRS that they're going to get put in jail or whatever is going to happen, and that's usually not the case," says Greg Hudgins, a CPA in Florida and New York.
The Federal Trade Commission warns people to be wary of any tax relief company or professional charging high upfront fees and making false promises to "eliminate" or reduce your tax debt or stop back-tax collections.
While there are some legitimate tax relief services, the average taxpayer can negotiate their tax debt on their own, often by applying online for a payment plan or offer in compromise.
"It's not something that requires any magic or any specific training. It's a form that gets filled out and submitted," Hudgins says.
Types of tax relief services available
More than 11.3 million Americans were behind on federal taxes at the end of 2023, so it's no wonder why tax relief services are widely advertised. But they typically aren't all they're cracked up to be.
"Be cautious; many charge high fees and their success is not guaranteed," says Paul Miller, managing partner and CPA at Miller and Company, an accounting firm with offices in Florida, New York, and Washington, DC.
"Instead, consider reaching out to non-profit debt counselors who offer credit counseling. They can help you create budgets and payment plans, though some may still charge fees," Miller says.
There are three main types of tax relief offered by the IRS for people who need more time paying their federal tax bill:
- Establishing a payment plan
- Settling for less than you owe through an offer in compromise
- Asking for a temporary delay in collections (also known as "currently not collectible")
Any of these can be negotiated directly between the taxpayer and the IRS. A tax relief service or debt counselor will simply provide assistance in filling out the forms and organizing paperwork.
Note: Low-income individuals who speak English as a second language should seek help for tax debt and other disputes from an approved local clinic. Assistance is often low-cost or free.
How tax relief services work
Initial consultation and assessment
If you decide to engage a tax relief service, do not make any payments up front.
The best tax relief services offer free consultations to taxpayers to assess their debt situation and propose a plan of action. You'll likely need to provide any notices or letters you've received from the IRS or your state tax agency as well as your most recent tax returns and proof of any tax payments you've made.
Many companies require a minimum tax debt of between $5,000 and $10,000.
Developing a personalized plan
Most tax relief services charge a flat rate fee or a percentage-based fee. You will likely be required to pay part of the fee before you get a personalized plan.
The plan should outline the steps the company will take to help you navigate your tax debt and include clear deliverables, such as approval for an IRS payment plan or an offer in compromise, and a final payment date and amount.
Implementation and resolution process
The company should walk you through filling out the forms and gathering the supporting documents required to negotiate your tax debt through an offer in compromise or set up a payment plan.
Common tax problems addressed by tax relief services
IRS back taxes
The US has a pay-as-you-go tax system. If you don't pay your full tax liability for the year through withholdings or estimated taxes, you'll owe additional taxes on April 15. And not filing your tax return doesn't mean you get out of it. In fact, you'll owe additional failure-to-file penalties and interest on your balance.
Tax liens and levies
If you can't pay your tax bill in full, it's your responsibility to contact the IRS, explain your situation, and apply for a payment plan. If you don't, and you ignore the IRS' attempts to contact you, the IRS may make a claim (levy) on your property. That can include taking part of your paycheck or seizing assets like real estate.
But before that happens, you will receive a bill titled Final Notice, Notice of Intent to Levy and Your Right to a Hearing. The best thing you can do is call the IRS immediately and work out a payment plan.
"The worst thing that folks can do who are in a tax problem is ignore the situation," Hudgins says. "Usually it can just be resolved by calling the number that's on the notice and finding out what's going on and doing a little bit of legwork."
Engaging a tax relief service may only stretch out the process, and it won't present any options besides what the IRS can offer you.
Wage garnishments
Wage garnishment is a type of tax levy. It's a late-stage option that the IRS may impose if you have refused or neglected to pay your federal tax bill after several attempts at collection.
The IRS will release a levy in a number of circumstances, such as if it's creating a financial hardship for you or if you set up a payment plan. The best course of action is to call the IRS directly and explain your situation.
Penalties and interest
You'll be charged a failure-to-file penalty of 5% of your unpaid tax obligation for each month your return is late. This penalty can' exceed 25% of your total unpaid taxes, and will max out after five months.
After 60 days, you'll owe a minimum failure-to-file penalty of $435, or "100% of the tax required to be shown on the return, whichever is less," according to the IRS.
A failure-to-pay penalty may also be applied, and potentially reduce the failure-to-file penalty if affecting the same months.
The IRS uses the federal short-term rate (which fluctuates), plus 3%, to determine how much interest you'll owe on your unpaid taxes.
Audits and appeals
The IRS generally has three years to audit a tax return, but may go back as far as six years for significant errors. As a taxpayer, you have the right to hire an enrolled agent, CPA, or tax attorney to represent you. Typically the IRS will ask for various records and receipts that have been used to prepare the tax return in question. If you disagree with the IRS' conclusion, you can appeal the decision.
Note: The Taxpayer Advocate Service, an independent organization within the IRS, can help you navigate tax debt if you're experiencing financial hardship. The quickest way to request assistance is by filling out Form 911 and faxing it to your local TAS office.
Choosing the right tax relief service
Key factors to consider
A reputable tax resolution service should have transparent pricing, a money-back guarantee, and good customer service. But don't just rely on a website's sales pitch — read online reviews from places like the Better Business Bureau, Consumer Affairs, Trustpilot, and Google Reviews.
It's also a good idea to call and ask questions about fees, staff credentials, and what you can expect the process to be like and how long it will take. Time is of the essence when dealing with debt, as interest will continue to accrue on your balance.
Lastly, steer clear of any company offering "guarantees" or promising to lower your debt. Only the IRS can decide whether you qualify for this type of tax relief based on your personal financial situation. The tax relief company is merely a messenger.
Cost of tax relief services
Fee structures and payment options
Percentage-based fee structures are common with tax relief companies. That can add up quickly, and usually isn't the most cost-efficient way to get help with your tax debt. The same goes for hourly fees.
Look for companies that offer a flat fee that's all-inclusive. After the initial consultation, the company will quote you one price, usually paid in installments, that will cover all the services you'll need to get your IRS debt settled.
Understanding the value of professional help
If the thought of speaking with an IRS agent about your debt is intimidating, you may be a good candidate to hire a professional. Or, if you disagree with the IRS' assessment of your tax situation and want to dispute your bill, hiring a professional to build that case may be necessary.
However, the goal should be to pay off your debt quickly and at the lowest cost. If a tax relief company is quoting you more than you can afford to pay out-of-pocket, it's not worth going into additional debt.
"What I've seen with some of these companies that talk about, oh, we'll settle your debt for pennies on the dollar, is that they're charging someone who's already in a bit of a predicament. They're charging them money upfront, and essentially they're just walking them through an offer in compromise," Hudgins says.
Remember, calling the IRS to discuss your situation and your options is free and the surest way to resolve your debt.
Best tax relief companies and programs
Precision Tax, Anthem Tax Services, Fortress Tax Relief, and Community Tax are popular tax relief companies. Some tax relief programs offer money-back guarantees or specialize in high-balance tax debts. Compare your options below and find the best option for your situation.
Offer in compromise (OIC)
"In my experience, tax relief services are typically engaging with the IRS to do something called an offer in compromise," Hudgins says. While the forms are lengthy and require attention to detail, the IRS clearly outlines the application instructions for individuals.
"You disclose a tremendous amount of information to the IRS about your entire financial life, all your assets, all your liabilities, and you're basically showing them that you don't have the ability to satisfy this tax debt right now," Hudgins says.
You'll also need to include copies of paystubs, bank statements, loan statements, and other important financial documents. If that sounds like a lot of work, it typically is. A tax relief service can keep you organized and ensure you're attaching the right documents and avoiding mistakes on the tax forms, but is not required. The "offer" you submit to the IRS is based on a formula that takes into account your net monthly income.
There is a $205 application fee for an offer in compromise, unless you qualify as low income. Individuals currently in bankruptcy proceedings are not eligible to apply.
Installment agreements
An installment plan can offer relief for those who need to pay off their balance over time. If you owe $50,000 or less in combined taxes, penalties, and interest, you can apply for a long-term payment plan online to make monthly payments.
There's a $22 setup fee to set up automatic withdrawals (unless you qualify for a low-income waiver) and a $69 setup fee for non-direct debit payments. Interest and some penalties will still accrue.
If you can pay your balance, penalties, and interest within six months and owe less than $100,000, you can apply for a short-term payment plan, which is free to set up.
The main advantage of an installment agreement is that you can avoid facing more serious consequences — such as wage garnishment — by making consistent payments to the IRS.
Currently not collectible (CNC) status
If the IRS determines that you can't pay your basic living expenses and satisfy your tax debt right now, it will temporarily delay collections. Penalties and interest will still accrue, but your account will be placed in "currently not collectible" status until your financial situation improves, based on an annual review of your income.
To apply, contact the IRS number on the notice you received in the mail, and be prepared to complete additional forms and submit paperwork supporting your financial hardship claims.
Innocent spouse relief
If you file a joint tax return with your spouse and they made an error leading to understated taxes related to their own employment or self-employment income, you may be eligible for payment relief.
Penalty abatement
If you fail to file or pay taxes, the IRS will charge penalties on your unpaid tax. However, if it's your first time owing taxes and you have a history of filing returns on time, you may qualify to have your penalty charges waived.
DIY tax relief vs. professional services
Pros and cons of DIY tax relief
Almost any tax debt can be negotiated directly between an individual and the IRS or their state tax agency. Here are the pros and cons to consider when you go the DIY route.
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Benefits of hiring a professional
If you have the means, a tax attorney or a CPA may be a better resource than a tax relief company when you're in debt. They have the knowledge required to help you organize your debt and choose the best payment plan option for you. They can also continue to advise you on tax matters, such as tax planning, filing returns, and making on-time payments.
FAQs
What are tax relief services?
Tax relief services are services that help individuals and businesses get current on their tax debt by assisting them with filling out applications for things like an IRS payment plan or an offer in compromise. Tax relief services typically charge a flat fee or a percentage-based fee and require a minimum tax debt between $5,000 and $10,000.
How do I choose the right tax relief service?
Choose the right tax relief service by ensuring the fees are clear, that the company has a money-back guarantee, and that online customer reviews are largely positive.
What is an Offer in Compromise (OIC)?
An offer in compromise is a way to negotiate your tax debt with the IRS. If you can prove financial hardship, you may be able to reduce how much you owe and pay it over time. Individuals and businesses can apply by following the IRS instruction manual.
Can tax relief services stop wage garnishments?
No, tax relief services cannot stop a wage garnishment (also known as a levy). Taxpayers who are experiencing financial hardship should call the number on their IRS letter or notice and explain their situation. The IRS can help them set up a payment plan, apply for an offer in compromise, or release the levy.
Are tax relief services expensive?
Tax relief services can be expensive, costing hundreds to thousands of dollars for work taxpayers can do on their own. They are typically not cost-effective for people already struggling with back taxes, and in some cases can lead to additional debt.
What is the best tax relief company?
Some of the best tax relief companies, based on user reviews, are Precision Tax Relief and Tax Defense Network. However, keep in mind that working with a tax attorney or CPA could be a better option than going through a big company.
