IRS National Standards: IRS Allowable Living Expenses

Using IRS National Standards for IRS Allowable Living Expenses Evaluations and the Bankruptcy Means Test

IRS National Standards are used by the IRS in evaluating ability-to-pay (Form 656 and installment plans) and the bankruptcy court for the means test. Though not permitted to be used on tax returns, through the IRS National Standards, IRS and bankruptcy evaluations are streamlined. However, we have successfully argued for higher allowances where justified by the unique circumstances, such as health conditions or as necessary for the production of income.

National Standards – IRS (Health Insurance and Out of Pocket Health Costs)

There is no IRS national standard for health insurance. In our experience, as long as the health insurance expense appears reasonable, the IRS should allow it somewhere (just tell them where you included it). Notably, insurance expense does not go in the same category as out of pocket health expenses. Out of pocket health expenses does have an IRS national standard. These amounts are (multiply this by the number of family members):

Under 65: $56

Over 65 years old: $125

The above items comprise the national standards – IRS. But there are additional expenses for which you can use under IRS Local Standards, which vary by county or region.

National Standards – IRS (Housing)

There is no IRS national standard for housing, but there is an IRS local standard, applicable to each county for housing and utilities. Here are some of the more common ones in California:

Orange County (Family Size)

(1) 2,578
(2) 3,028
(3) 3,191
(4) 3,558
(5) 3,615

Los Angeles County (Family Size)

(1) 2,335
(2) 2,743
(3) 2,890
(4) 3,222
(5) 3,274

San Diego County (Family Size)

(1) 2,371
(2) 2,784
(3) 2,934
(4) 3,271
(5) 3,324

Alameda County (Family Size)

(1) 2,672
(2) 3,138
(3) 3,307
(4) 3,687
(5) 3,747

Contra Costa County (Family Size)

(1) 2,531
(2) 2,972
(3) 3,132
(4) 3,492
(5) 3,549

Santa Clara County (Family Size)

(1) 3,016
(2) 3,543
(3) 3,733
(4) 4,162
(5) 4,229

National Standards – IRS (Transportation, Insurance & Operating Expenses)

There is no IRS national standard for transportation (including insurance and operating expenses), but there is an IRS local standard, applicable to each U.S. Region for transportation. Here are some of the more common ones in California:

Los Angeles (Including LA & Orange County, Riverside County, San Bernardino) (double the amount for 2 cars)
$254

San Diego (double the amount for 2 cars)
$230

San Francisco (Including Bay Area Counties) (double the amount for 2 cars)
$231

The U.S. Trustee’s Office has a statement, line by line for the means test form, addressing issues or questions with how it should be filled out, which can be seen here. These answers can also be helpful for a Form 433 or IRS Form 656.

Posted on 04/05/2020 by Daniel Layton.