What Are IRS 433-F Allowable Expenses?

When you owe the IRS and cannot pay immediately, the agency uses Form 433-F, the Collection Information Statement, to understand your financial situation. This financial disclosure document gathers information about your income, expenses, and assets to assess your ability to pay. Form 433-F is the version requested by the IRS’s Automated Collection System (ACS) and is more condensed than the detailed Form 433-A used in more complex cases. The information is used to negotiate collection alternatives, such as a monthly Installment Agreement or having your account placed in Currently Not Collectible status.

Understanding IRS Expense Standards

To evaluate a taxpayer’s ability to pay, the IRS uses standardized expense allowances. These standards determine how much monthly income can be allocated to necessary living costs and are divided into National and Local Standards.

National Standards cover necessary expenses such as food, housekeeping supplies, apparel, and personal care products. These figures are standardized across the country and are based on the size of your family, not on where you live.

Local Standards address costs that vary by geographic location, primarily for housing and utilities. This includes mortgage or rent, property taxes, insurance, maintenance, and utilities like gas, electric, water, and trash collection.

Transportation expenses are separated into two standards. Vehicle ownership costs, such as a car loan or lease payment, fall under a National Standard. Vehicle operating costs—which includes fuel, insurance, and maintenance—fall under a Local Standard, as these expenses differ by region.

Information and Documentation for Allowable Expenses

The IRS requires proof to substantiate the amounts you claim, especially if your actual expenses exceed the established standards. Having this information organized beforehand streamlines the process.

Housing and Utilities

For housing and utilities, you must document your total monthly outlay. This includes your rent or mortgage payment, mandatory homeowners’ association fees, and property taxes. The required documentation consists of your current lease agreement, recent mortgage statements, property tax assessments, and copies of utility bills from the last few months.

Transportation

For transportation expenses, you will need to provide documentation for both ownership and operating costs. You will need the most recent statement showing the monthly payment amount for your vehicle loan or lease. For operating costs, you must collect receipts for fuel, oil changes, and routine maintenance, and your auto insurance bill will be needed to prove your premium costs. If you use public transportation, you will need to provide records of your monthly spending on transit passes.

Out-of-Pocket Health Care Expenses

The IRS allows for out-of-pocket health care costs that are necessary for the health and welfare of your family. This includes monthly health insurance premiums that are not paid by an employer, as well as regular costs like co-pays and prescription drugs. To document these expenses, you should gather pay stubs that show deductions for health insurance premiums, statements from your insurance provider, and recent pharmacy receipts.

Other Necessary Expenses

A category for other necessary expenses exists for costs required for your family’s health and welfare or to produce income. Common examples include court-ordered payments like child support or alimony, childcare costs for working parents, and term life insurance premiums. For these items, you must provide official documentation, such as a copy of the court order for support payments, invoices from a childcare provider, and a statement from your life insurance company.

Completing the Expense Section of Form 433-F

With your financial documents gathered, you can fill out the monthly living expense section of Form 433-F. You will list your actual spending in various categories. For items covered by National Standards, such as food and personal care, you will be allowed the standard amount for your family size, though you should still report your actual spending.

If your actual expenses in a Local Standard category are higher than the amount the IRS allows, your documentation is important. You must enter your actual expense on the form and attach proof. The IRS may allow an expense that exceeds the standard if you can prove it is necessary for the health and welfare of your family or for the production of income.

How the IRS Calculates Your Ability to Pay

The IRS uses Form 433-F to perform a straightforward calculation. The agency subtracts your total allowable monthly expenses from your total monthly income. This calculation determines your net disposable income, which is the amount the IRS views as available after all necessary living costs are met.

This resulting figure is what the IRS will expect you to pay each month as part of an Installment Agreement. If the calculation shows a negative net disposable income, you may qualify to have your account designated as Currently Not Collectible. This status temporarily suspends collection actions.