Offers in Compromise for Teachers: Tax Help for the Most Underpaid and Overworked

Hard working…Teachers are one of the most overworked and underpaid professions. As far as IRS tax debt is concerned it’s rare for a teacher to end up with a debt due to their relatively low income.
Light at the End of the Tunnel…However teachers have fairly good pension and retirement accounts and the IRS can hit those teachers with a tax debt when the educator cashes the account out.

Don’t count your chickens…With the withdrawal of money from any investment account the IRS expects to be paid their due on the money taken out of the account. You should expect to shell over around 30% of your investment funds to the IRS or risk owing that money.

No respect…So what happens when you’ve spent your life teaching and now the IRS is telling you that you owe money after you finally received a decent payoff from the state? There are some factors that need to be considered before you can explore options for dealing with your IRS tax debt.

An offer you can’t refuse…You’ve been a teacher who’s spent a lifetime making far less than other professions with your same level of education; your income certainly has never been spectacular. With that in mind you may be a candidate for being able to settle your tax debt for a lesser amount which is called an Offer in Compromise. However to see if you qualify for an Offer in Compromise you need to take a look at your finances.

First of all, how much did you get from your pension and/ or retirement; and what did you spend it on? The reason for this is that the money gained from withdrawing out of these accounts is considered income for the tax year, and the higher your income, the less chance you have of getting an Offer in Compromise. The only exception to this is if the money had to be spent on necessary expenses like medical costs.

Second, do you own a house, and how much equity do you have in it? The more equity you have the less your chances of getting an Offer are.

Finally, how much debt do you owe the IRS? If the debt is less than $10,000 trying to get an Offer in Compromise is probably not your best option. The only way to get an Offer for that much tax debt would be if you were destitute.

Did you teach math? If you think you may be able to get an Offer in Compromise then get out a pen and paper and figure out what the IRS considers your financial status. The formula is: Your disposable income + any equity you have = your financial status. If the amount is more than your debt, don’t even try to get an Offer in Compromise. But for the sake of argument let’s say you’re a renter, you own an old beat up car, and you had to use your hard earned pension on your mother’s nursing home bills. Clearly after all that you have no way of paying back the IRS in full, so in that case you would qualify for an Offer in Compromise.