What Are Allowable Expenses Under IRS Standards?

Allowable expenses under IRS standards are the monthly living costs the IRS recognizes when it decides how much you can afford to pay toward back taxes. They fall into three groups: fixed national amounts for food, clothing, personal care, and out-of-pocket health care; capped local amounts for housing and transportation that depend on your county; and documented “other necessary expenses” like health insurance premiums and court-ordered support. The figures effective April 21, 2025, remain in effect through June 2026.

The Test Every Expense Has to Pass

An expense qualifies if it’s needed for your family’s health and welfare or for earning income, and the amount is reasonable.¹ Anything that fails that test is excluded, which raises the amount the IRS expects you to pay.

These standards drive three decisions. When you request an installment agreement that requires financial analysis, they set your monthly payment. When you submit an Offer in Compromise, they feed the reasonable collection potential calculation. When your allowable expenses equal or exceed your income, the IRS may classify your account as Currently Not Collectible.

National Standards: Food, Clothing, and Personal Care

National standards cover five categories together: food, housekeeping supplies, clothing and services, personal care products, and a miscellaneous allowance. The amount is the same everywhere and depends only on household size.²

One person: $839
Two persons: $1,481
Three persons: $1,753
Four persons: $2,129
Each additional person beyond four: add $394

Household size generally matches the number of dependents on your most recent return, plus you. You get the full standard without proving what you actually spend in each category. If you claim more, you’ll need documentation showing the extra cost is a genuine living necessity. The miscellaneous portion cannot be increased above the standard under any circumstances.²

The miscellaneous allowance is a useful catch-all. It covers credit card payments, bank fees, school supplies, and any portion of other expenses that exceed their respective standards.

National Standards: Out-of-Pocket Health Care

Out-of-pocket medical costs get their own national allowance covering copays, prescriptions, eyeglasses, and medical devices insurance doesn’t fully cover. You receive this amount automatically without proving actual spending.

Under age 65: $84 per person
Age 65 and older: $149 per person

These are per person, not per household. A family of four all under 65 would receive $336 per month.³ Health insurance premiums are separate and go under other necessary expenses.

Local Standards: Housing and Utilities

Housing and utility caps are set by county and cover rent or mortgage, property taxes, homeowner’s or renter’s insurance, and utilities including electricity, water, gas, cell phone service, and internet.¹

The range is wide. A single-person monthly housing allowance can run from around $920 in lower-cost counties to over $4,100 in San Francisco. A family of four in New York County could see an allowance approaching $5,800, while the same family in a rural area might see a cap closer to $1,300.

The rule that catches people: you get the lesser of your actual housing costs or the local cap. Pay $1,800 in a county where the cap is $2,500, and the IRS uses $1,800. The difference doesn’t become spending money. If your costs exceed the cap, you’ll have to show the higher amount is necessary for your health or welfare, which usually means a medical need tied to the location rather than a preference for a nicer home.¹

Local Standards: Transportation

Transportation has three components, and they work differently from each other.

Ownership Costs

Ownership covers your monthly car loan or lease payment. The nationwide cap is $662 per month for one vehicle and $1,324 for two. A single taxpayer normally qualifies for one vehicle; two are allowed when two people need to commute. You get the lesser of your actual payment or the cap. If your car is paid off, your ownership allowance is $0. There’s no phantom car payment.⁴

Operating Costs

Operating costs cover gas, insurance, maintenance, registration, and parking, and they vary by Census region and metropolitan area. The monthly allowance for one car ranges from $219 in Anchorage to $401 in New York, with most regions falling between $250 and $365. Two-car households receive double. If your car is paid off, this is the only transportation allowance you get.⁵

Public Transportation

Without a vehicle, a single nationwide public transit allowance of $244 per month applies. It covers bus, train, subway, ferry, and taxi fares, and you receive the full amount without documenting transit spending.⁵

Claiming more than the standard in any transportation category requires documentation that the higher cost is necessary for earning income or maintaining your family’s welfare.⁴

Other Necessary Expenses

Beyond the fixed and capped standards, certain costs vary by individual and require documentation, because there’s no preset amount.

Health insurance premiums: the actual amount you pay for coverage, whether through an employer or purchased individually.
Court-ordered payments: child support and alimony count in full, provided you’re current on those obligations.
Mandatory payroll deductions: union dues, required retirement contributions (not voluntary ones), and similar deductions withheld as a condition of employment.
Current-year tax payments: estimated payments or withholding for the current tax year, so you don’t fall behind on new taxes while paying old ones.
Term life insurance: premiums for basic term coverage may be allowed if reasonable. Whole life policies are treated as discretionary investments.

Each of these still has to pass the necessary-expense test: supporting health, welfare, or income production, in a reasonable amount.⁶ Revenue officers have real discretion here, so documentation makes a difference.

What the IRS Will Not Allow

Some costs are excluded no matter how important they feel. This is where taxpayers most often misjudge what will count.

Private school or college tuition, unless a dependent has documented special needs that public schools cannot address.
Voluntary retirement contributions. 401(k) contributions beyond what your employer mandates are treated as discretionary savings.
Charitable donations, unless giving is a condition of your employment or otherwise meets the necessary expense test.
Discretionary investments, including whole life insurance policies, mutual funds, and payroll savings plans.
Tuition or life insurance payments for children made under a court order. Even a court order won’t convert an otherwise excluded expense into an allowed one.

Extravagant spending near the time of assessment can hurt you too. The IRS may treat luxury vacation costs or large discretionary purchases as dissipated assets and factor them back into what you owe.⁷

When You Can Exceed the Standards

Two paths let real costs count above the published caps.

The Six-Year Rule

If you can pay the full tax debt, including penalties and interest, within 72 months, the IRS will allow living expenses that exceed the collection financial standards and permit other payments like student loan minimums and credit card minimums.¹ You still provide your financial information, but the IRS won’t demand receipts or proof that each individual expense is reasonable. In exchange, you commit to a plan that resolves the debt within six years. For taxpayers whose real expenses modestly exceed the published standards, this is often the most practical path.

Requesting a Deviation

Outside the six-year rule, the IRS can still approve actual expenses that exceed the caps when your circumstances require it. The process runs through Form 433-A, the Collection Information Statement, where you report your full financial picture.⁸ Expect requests for pay stubs, bank statements, loan statements, medical bills, and prior returns. Vague claims won’t move the needle. If you’re paying $3,200 in rent in a county with a $2,800 cap, you’d need to show that adequate housing isn’t available at the lower amount, often because of a medical condition requiring specific accommodations or proximity to specialized treatment.

Expenses that are “not generally allowed,” including private tuition, charitable contributions, and voluntary retirement savings, face an even higher bar. The reviewing officer will consider them only if you prove they’re necessary for health, welfare, or income production.⁶

When Allowable Expenses Meet or Exceed Your Income

If the numbers show you have nothing left to pay after allowable expenses, the IRS may place your account in Currently Not Collectible status. Active collection stops. No levies, no garnishments. Interest and penalties keep accruing, and the IRS determines hardship using the same standards described above, based on the financial information you provide on Form 433-A.⁹ CNC status isn’t permanent; the IRS reviews these accounts periodically and can resume collection if your finances improve.

In an Offer in Compromise, allowable expenses drive the offer amount directly. The IRS subtracts them from your income to find disposable income, then projects that across the remaining collection period to estimate what it could realistically collect. Because the IRS is deciding whether to accept less than you owe, it scrutinizes expenses more closely here than in a standard installment agreement. Every dollar of expense it allows reduces what you’d have to offer, so expect detailed questions on any cost that approaches or exceeds the published standards. Organize pay stubs, mortgage statements, utility bills, insurance declarations, and medical receipts before you apply. Without substantiation, the IRS defaults to the lower standard figures.

1
Internal Revenue Service. Collection Financial Standards
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Internal Revenue Service. National Standards: Food, Clothing and Other Items
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Internal Revenue Service. 2025 Allowable Living Expenses Health Care Standards
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Internal Revenue Service. Local Standards: Transportation
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Internal Revenue Service. 2025 Allowable Transportation Expenses
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Internal Revenue Service. Publication 1854
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Internal Revenue Service. 5.8.5 Financial Analysis
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Internal Revenue Service. Collection Information Statement for Wage Earners and Self-Employed Individuals
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Internal Revenue Service. 5.16.1 Currently Not Collectible