What Are the IRS National Standards for Housing and Utilities?

The Internal Revenue Service establishes Collection Financial Standards to calculate a taxpayer’s ability to pay a delinquent tax liability. A component of these is the Local Standards for housing and utilities, which provide a baseline for reasonable living expenses that vary by location. The purpose of these standards is to ensure taxpayers can cover basic costs while the IRS determines an appropriate amount for monthly tax payments or evaluates an Offer in Compromise. These figures are derived from data collected by the U.S. Census Bureau American Community Survey. The IRS uses this information to create a standardized framework, preventing subjective determinations of a taxpayer’s financial capacity.

What the Standards Cover

The housing and utilities standards encompass the fundamental costs associated with maintaining a primary residence. For housing, the standards account for the total payment made for shelter. This includes mortgage or rent payments, as well as recurring costs such as homeowner’s or renter’s insurance and property taxes.

The utilities portion of the standard covers the services required to make a home habitable. These include:

• Gas, electricity, and water
• Heating oil
• Garbage collection
• Telephone, internet, and cable services

The standard also accounts for anticipated expenses for general maintenance and repairs.

Determining Your Allowable Expense

The IRS publishes housing and utility expense standards annually, and these amounts vary by location and household size. The standards are organized in tables showing a single, combined allowable amount for housing and utility costs for each area. You can find the most current figures on the IRS website under the “Collection Financial Standards” section.

When calculating your allowable expense on a financial disclosure, such as Form 433-A, a specific rule applies. You are permitted to claim the lesser of your actual monthly housing and utility expenses or the local standard amount for your household size. For instance, if your actual mortgage, insurance, and utility bills total $2,200 per month, but the standard for your family size and location is $2,519, you would claim your actual cost of $2,200. Conversely, if your actual costs were $2,800, your allowable expense would be capped at the $2,519 standard.

Proving Expenses Higher Than the Standard

In certain situations, the IRS may permit you to claim your actual housing and utility costs even when they exceed the published local standard amount. To claim the higher amount, you must demonstrate to the IRS that the expenses are necessary for the health and welfare of your family or for the production of income. The expenses must be reasonable for your specific circumstances.

Substantiating a claim for higher expenses involves providing detailed and verifiable documentation. You will need to present copies of recent mortgage statements, a current lease agreement, or cancelled checks that confirm your monthly payment amount. You should also gather recent utility bills for gas, electricity, and water to prove those specific costs.

A strong case may require additional evidence. For example, if a larger home is needed to accommodate a disabled family member, you might provide a letter explaining the circumstances along with the other financial proof. The burden of proof rests entirely on the taxpayer to show that the higher expenses are not a matter of choice or lifestyle but a necessity.