IRS Low-Income Certification: 250% Threshold and Fee Waivers

The IRS low-income certification lets taxpayers whose household income falls at or below 250% of the federal poverty guidelines skip the $205 application fee, the upfront payment, and any monthly payments that would otherwise be due while an Offer in Compromise is under review.¹ There is no separate form. The certification lives inside Section 1 of Form 656, and you claim it by entering your income on a short worksheet and checking a box.²

2026 Income Limits by Household Size

The figures below are 250% of the 2026 federal poverty guidelines published by the Department of Health and Human Services. If your income sits at or below the number for your household size and location, you qualify.³

48 Contiguous States and Washington, D.C.

1 person: $39,900
2 people: $54,100
3 people: $68,300
4 people: $82,500
5 people: $96,700
6 people: $110,900
7 people: $125,100
8 people: $139,300

Alaska

1 person: $49,875
2 people: $67,625
3 people: $85,375
4 people: $103,125
5 people: $96,700
6 people: $138,625
7 people: $156,375
8 people: $174,125

Hawaii

1 person: $45,900
2 people: $62,225
3 people: $78,550
4 people: $94,875
5 people: $111,200
6 people: $127,525
7 people: $143,850
8 people: $160,175

For households larger than eight in the 48 contiguous states, add $5,680 to the underlying poverty guideline for each additional person and multiply that increment by 2.5 to extend the threshold. The per-person increment is higher in Alaska and Hawaii.³

Two Ways To Prove Your Income Qualifies

The IRS accepts either of two measurements, and you only need to pass one.² The primary method uses the adjusted gross income on your most recently filed Form 1040. The second method uses your household’s current gross monthly income from Form 433-A (OIC) multiplied by 12. If your last tax return shows income above the threshold but your circumstances have deteriorated since then, the current-monthly method is the one that opens the door. If either number falls at or below the chart for your household and location, you qualify.

Whichever figure you use has to line up with the rest of your application. The income on the certification worksheet needs to match the financial detail on Form 433-A (OIC). A mismatch tends to bounce the package back as incomplete.

How Household Size Is Counted

Your household includes you, your spouse if you file jointly, and anyone you claim as a dependent on your federal return. Children, elderly parents, and other relatives count when they rely on you for more than half their support during the year. A college student living in a dorm generally still counts if you claim them as a dependent.

Roommates and other people who share your address are not part of the household unless you actually claim them. An unmarried partner factors in only if you have a child together or you claim that person as a tax dependent. The distinction is worth checking carefully: adding one person can raise the applicable threshold by thousands and pull an otherwise-ineligible taxpayer under the line.

What the Certification Waives

Checking the low-income box eliminates three separate costs that would otherwise attach to an Offer in Compromise.²

The $205 application fee that normally accompanies every OIC submission.
The initial payment: 20% of the proposed amount on a lump-sum offer, or the first installment on a periodic-payment offer.
The monthly payments that a periodic-payment offer would otherwise require while the IRS evaluates the case.

That third piece is the one most applicants overlook. Without the certification, a periodic-payment offer requires ongoing installments throughout the review, which can add up to hundreds of dollars before the IRS even reaches a decision. Certifying stops those payments entirely.⁴

Assets Don’t Affect the Fee Waiver

The certification is an income test only. Owning a home or a car does not disqualify you. You still have to disclose every asset on Form 433-A (OIC), because the IRS uses that information to decide whether to accept the underlying offer.⁵

Real estate equity, for example, is calculated at 80% of current market value minus any outstanding loan balance. That figure feeds into the minimum amount the IRS expects you to offer. Home equity will not block your fee waiver, but it can raise the settlement number the agency is willing to accept.

Claiming the Certification on Form 656

Section 1 of Form 656 contains a worksheet where you enter either your AGI from your last filed return or your current gross monthly household income multiplied by 12. Compare the result to the chart printed for your family size and location. If your figure meets or falls below the chart amount, check the corresponding box in Section 1 to certify eligibility. That single checkbox tells the IRS you are claiming the exemption from the fee and from all payments during review.²

Before you file, it is worth running your numbers through the IRS Offer in Compromise Pre-Qualifier tool. It walks through income, expenses, and assets and gives a preliminary read on whether the underlying offer is likely to be accepted and roughly what the IRS would consider.⁶

When you mail the completed package, do not include a check for the $205 fee or the initial payment. Sending the package with neither the payment nor a valid certification will get everything returned unprocessed.⁴ During intake, the IRS verifies the income you reported against the threshold for your household. If the agency concludes you do not qualify, it sends a letter explaining the denial and returns the package; at that point you would need to resubmit with the $205 fee and the required initial payment.

The Same 250% Threshold Applies to Installment Agreements

The low-income rule reaches beyond the Offer in Compromise process. If you set up a long-term IRS payment plan and your income is at or below the 250% figure, the user fee is either waived or reimbursed. A direct-debit installment agreement waives the fee upfront. Any other payment method leads to reimbursement once you complete the agreement.⁷ If the IRS system does not flag you automatically, you can submit Form 13844 within 30 days of the acceptance letter to request the reduced fee.

1
Office of the Law Revision Counsel. 26 USC 7122 – Compromises
2
Internal Revenue Service. Form 656 – Offer in Compromise
3
U.S. Department of Health and Human Services. 2026 Poverty Guidelines
4
Internal Revenue Service. Offer in Compromise FAQs
5
Internal Revenue Service. Offer in Compromise
6
Internal Revenue Service. Offer in Compromise Pre-Qualifier
7
Internal Revenue Service. Payment Plans; Installment Agreements