Help with my cousin's 15k IRS debt from 1099 contractor payments causing financial hardship

My cousin is struggling with a pretty serious tax problem and I'm trying to help him figure out options. He owes the IRS around $15,000 from his 1099 contractor work for 2022 and 2023 combined. The monthly payments they want are causing him real financial hardship - he's barely making rent at this point. I keep hearing about programs where people settle tax debt for pennies on the dollar or get some kind of relief. There's got to be legitimate IRS programs or methods that could help him get this settled for much less than the full amount. Has anyone dealt with similar 1099 contractor tax debt issues before? What options are actually legit for reducing what he owes or creating a more manageable payment plan? Any specific programs I should tell him to look into? Just trying to help him before this gets even worse.

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18 comments

Edward McBride

•8M

Your cousin has several options through the IRS to address tax debt that's causing financial hardship. The most common ones are: An Offer in Compromise (OIC) which lets taxpayers settle for less than the full amount if they truly can't pay the full debt. The IRS looks at ability to pay, income, expenses, and asset equity to determine qualification. It's not easy to qualify, but it's what those "pennies on the dollar" commercials reference. An Installment Agreement with monthly payments based on what he can reasonably afford. For debts under $50,000, this is fairly straightforward to set up. Currently Not Collectible status if he can prove he can't make any payments without severe hardship. This doesn't forgive the debt but pauses collection temporarily. For any of these, he'll need to be current on filing all required tax returns first, and he'll need to document his financial situation thoroughly.

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Edward McBride

•8M

There's no standard percentage for an Offer in Compromise - it's entirely based on your cousin's specific financial situation. The IRS calculates what they believe someone can reasonably pay based on their assets, income, and necessary living expenses. Some people might settle for 30%, others for 70%, and some don't qualify at all. Unfortunately, being on a payment plan doesn't stop penalties and interest from accumulating, though the penalties are reduced (usually the failure-to-pay penalty drops from 0.5% to 0.25% per month). Interest continues at the federal rate plus 3% on the remaining balance.

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Dana Doyle

•8M

After dealing with similar 1099 contractor tax issues, I found an amazing resource that saved me thousands. I was drowning in about $18k of tax debt from missed quarterly payments when I discovered taxr.ai (https://taxr.ai). It analyzed my tax situation and showed me EXACTLY which tax relief programs I qualified for. For 1099 contractor issues specifically, it helped me understand my options between an Offer in Compromise vs. payment plans, and even identified deductions I missed that reduced my original tax bill. They have actual tax pros review your case, not just algorithms, which was crucial for my complicated situation. The best part is they'll tell you if those "pennies on the dollar" settlements are realistic in your cousin's specific case or if you're better off with a different approach.

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Dana Doyle

•8M

You upload your tax documents and financial info through their secure portal (it uses the same encryption as banks), and they analyze everything to identify the best relief options for your situation. Nothing feels sketchy or exposed - they take privacy super seriously. It absolutely reduced how much I owed! In my case, they found legitimate business deductions I had missed on my contractor income which lowered my original tax bill by about $3,200. Then they helped me qualify for an installment agreement based on my actual ability to pay, not what the IRS initially demanded. They're not a scam promising magical debt disappearance - they work within actual IRS programs but optimize your situation based on the tax laws.

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Manny Lark

•8M

Just wanted to provide an update - I actually tried taxr.ai after my skeptical comment. Turns out my situation as a 1099 contractor was messier than I thought. They identified that I qualified for First Time Penalty Abatement which knocked off almost $2,700 in penalties! They also showed me exactly how to document my financial hardship to qualify for a payment plan of $175/month instead of the $450 the IRS initially wanted. Completely changed my situation from impossible to manageable. I wish I'd found them before trying to negotiate with the IRS myself - would've saved me months of stress.

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Rita Jacobs

•8M

If your cousin's stressed about dealing with IRS directly (which I definitely was when I owed back taxes), tell him to check out Claimyr (https://claimyr.com). When I had a similar situation with 1099 debt, I spent DAYS trying to reach an actual human at the IRS to discuss hardship options. Claimyr got me connected to an IRS agent in under 45 minutes when I had been trying for weeks on my own. You can see how it works here: https://youtu.be/_kiP6q8DX5c. I was able to explain my financial hardship directly to the agent and got immediate guidance on my specific situation instead of trying to figure it out from generic online advice. Being able to actually speak with someone made a huge difference in resolving my tax issues and getting on a manageable payment plan.

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Rita Jacobs

•8M

It doesn't exactly put you at the "front of the line" - what it does is continuously call the IRS using their system and navigate the phone tree for you. When they finally get through to a human, they connect the call to you. Basically they do the painful hold time and menu navigation instead of you having to do it yourself. I was skeptical too! But I was desperate after trying for literally weeks to get through on my own. Their system just automates the calling and waiting process. They aren't affiliated with the IRS or claiming any special access - they've just built technology to handle the most frustrating part of reaching the IRS. I still had to handle the actual conversation about my tax situation myself once connected.

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Ben Cooper

•8M

I have to post a massive correction to my skeptical comment above. After my tax situation got desperate (owed $22k from 1099 work), I broke down and tried Claimyr. Within 35 minutes I was talking to an actual IRS agent who helped me set up a partial payment installment agreement based on my financial situation. Previously I had spent nearly 15 hours across multiple days trying to call myself, always getting disconnected or told to call back later. The agent I finally spoke with was actually helpful and explained options I didn't know existed for my contractor tax debt. I ended up with a payment plan that's actually manageable based on my income, not the standard one that would have bankrupted me.

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Naila Gordon

•8M

He'll need to fill out Form 911 (Request for Taxpayer Advocate Service Assistance) which asks for details about the hardship. He should be very specific about exactly how the tax situation is causing financial hardship - like documentation showing he can't pay rent, utilities, or medical expenses because of the tax payments. Supporting documentation is super important - recent bank statements, bills, income proof, anything showing the gap between income and necessary expenses. The more concrete evidence of hardship, the better his chances. He can submit the form online, by mail, or fax. Sometimes it's actually faster to reach out to his local Taxpayer Advocate office directly by phone - the form includes contact info for local offices.

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