A Beneficial Effect of Inflation

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The IRS increased the Collection Financial Standards on April 25, 2022. The increases reflect that we have entered a period of inflation, as the amounts have not increased by this much in a very long time.

The percentage increases between 2021 and 2022 are significantly higher than they were between 2020 and 2021 for all categories, but the biggest percentage increases were in the “Out of Pocket Health Care” and “Public Transportation” categories. 

These standards can be used in IRS collection-related matters, such requesting currently non-collectable status or an offer in compromise. Important related note: The offer in compromise booklet was also updated this month. The IRS website states that the new forms must be used if you apply for an OIC on April 25, 2022 or later.

Some of the standards can be used with no questions asked, while others serve as a ceiling (i.e. the amount that can be used is the “lesser of” the standard or what the taxpayer actually spends). For certain (and arguably, all) categories, amounts in excess of the standards are allowed if the taxpayer provides a good reason and proof.

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All of the current standard amounts are available here: IRS Collection Financial Standards.

Here are is a sampling of the changes (based on a household of one):

“No questions asked” amounts:

  • Food, Clothing, Other Items: New standard is $785, which is a 9% increase from the 2021 amount of $723. Compared to a 1% increase between the 2020 amount of $715 and 2021.
  • Public Transportation: New standard is $242, which is a 12% increase from the 2021 amount of $217. Compared to a 3% decrease between the 2020 amount of $224 and 2021.

This decrease corresponds with a more substantial increase in vehicle operating costs during the same period, and likely relates to the decreased use of public transportation during the early days of the pandemic.

“No questions asked” or “higher allowed with proof” amounts:

  • Out of Pocket Health Care under 65: New standard is $75, which is a 34% increase from the 2021 amount of $56. Compared to a 0% increase between 2020 and 2021, and a 2% increase between the 2019 amount of $55 and 2021.
  • Out of pocket health care 65 and older: New standard is $153, which is a 22% increase from the 2021 amount of $125. Compared to a 0% increase between 2020 and 2021, and a 10% increase between the 2019 amount of $114 and 2021.

“Ceiling standard” amounts (though, worth arguing for more if circumstances warrant it):

  • Vehicle Ownership Costs: New standard is $588, which is a 10% increase from the 2021 amount of $533. Compared to a 2% increase between the 2020 amount of $521 and 2021.

Local Standards such as “Vehicle Operating Costs” and “Housing and Utilities” also saw increases, although the percentage increases varied based on locality. For example:

  • Housing and Utilities (for the top three largest counties):
    • Los Angeles County (California): New standard is $2,544, which is a 7% increase from the 2021 amount of $2,367. Compared to a 1% increase between the 2020 amount of $2,335 and 2021.
    • Cook County (Illinois): New standard is $2,036, which is an 8% increase from the 2021 amount of $1,882. Compared to a 1% increase between the 2020 amount of $1,858 and 2021.
    • Harris County (Texas): New standard is $1,774, which is a 9% increase from the 2021 amount of $1,633. Compared to a 1% increase between the 2020 amount of $1,610 and 2021.

The standards are derived from various sources, such as the Bureau of Labor Statistics Consumer Expenditure Survey, Medical Expenditure Panel Survey, U.S. Census Bureau, and American Community Survey. There are at least two oddities that carry over from the previous numbers, the amount for housekeeping supplies and personal care products are less for a household of three than they are for a household of two.

Finally, the federal poverty limit was also increased earlier this year: 250% of FPL for a household of one is now $33,975, which is a 5% increase from the 2021 amount of $32,200. Compared with a 1% increase between the 2020 amount of $31,900 and 2021.

About Samantha Galvin

Samantha Galvin is an Associate Professor of the Practice of Taxation and the Director of the Low Income Taxpayer Clinic (LITC) at the University of Denver. Professor Galvin has been teaching full-time at the University of Denver since October of 2013 and teaches courses in tax controversy representation, individual income tax, and tax research and writing. In the LITC, she teaches, supervises and assists students representing low income taxpayers with controversy and collection issues.

Comments

  1. Melinda Dunmire says

    Thank you very much for crunching these numbers for us Samantha. Out of curiosity, I hoped to compute the percentage change myself to determine if it was in any way meaningful given the BLS reported inflation of 8.5% for the 12 month period ended 3/22. You saved me the time!

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