To make this a truly authoritative "pillar" post that ranks for 2026 SEO, we need to add depth to the legal exceptions, the math of the "Means Test," and a FAQ section to capture voice-search queries (e.g., "Can I keep my 401k and get CNC?").

Here is the expanded, high-authority version of the blog.

2026 IRS National Standards: The Definitive Guide to Allowable Living Expenses

If you are applying for Currently Not Collectible (CNC) status or an Offer in Compromise (OIC), you have likely encountered the term "Allowable Living Expenses" (ALE). To the average taxpayer, this sounds like "what I spend to live." To the IRS, it is a rigid, mathematical formula that determines whether you are truly in financial hardship or if you are "living too well" while owing the government.

In 2026, with inflation impacting everything from eggs to electricity, the IRS has adjusted its benchmarks. However, these standards remain a major hurdle. If your actual costs are higher than these standards, the IRS expects you to use that "excess" money to pay your tax debt—regardless of your actual bank balance.

1. What are the IRS National Standards?

The National Standards are fixed monthly allowances for five specific categories. These amounts are uniform across all 50 states. Whether you live in a small town in Kansas or a penthouse in Manhattan, the IRS gives you the same "Food and Clothing" budget.

The "Big Five" (Food, Clothing, and Miscellaneous)

The IRS combines five subcategories into one total monthly allowance based on your household size. This is a "no-questions-asked" amount; you generally do not need to provide receipts to claim this full total.

2026 National Standards (Updated February 2026):

Out-of-Pocket Healthcare Standards

This is a separate flat allowance for medical expenses not covered by insurance (e.g., co-pays, OTC medications, dental expenses).

• Under 65: $84 per person.
• 65 and Older: $149 per person.
• Note: If you have chronic medical conditions requiring more than this, you must provide the last 12 months of bills to justify a higher deduction.

2. Local Standards: The Geography of Hardship

Unlike the National Standards, Local Standards are determined by your county of residence. This is where most CNC applications succeed or fail.

Housing and Utilities

This category includes your rent or mortgage, property taxes, interest, insurance, and all essential utilities (gas, electric, water, trash, and basic phone/internet).

The "Lesser Of" Rule: This is the most frustrating part of the tax code. The IRS allows the lesser of:

1. Your actual monthly housing/utility cost.
2. The IRS local standard for your county.

If your mortgage is $3,500 but the IRS standard for your county is $2,400, the IRS will "phantom-calculate" an extra $1,100 of income that you don't actually have. This is a primary reason CNC requests are denied.

Transportation Standards

• Ownership Costs: If you are paying a loan or lease, the 2026 nationwide cap is $619 per car (limit two cars for joint filers). If your car is paid off, you get $0 for this category.
• Operating Costs: This covers fuel, insurance, and repairs. In 2026, these are tiered by region. For example, the Northeast Region allows roughly $320–$380 per car, while the Midwest may be slightly lower.

3. The Math of the "Hardship Test"

To determine if you qualify for "Currently Not Collectible," the IRS uses a specific formula on Form 433-F or 433-A:

• If the result is $0 or negative, you are a prime candidate for CNC status.
  
  
• If the result is positive, the IRS will require that amount as a monthly payment under an Installment Agreement.

4. Advanced Strategies: How to Overcome the Standards

If your actual expenses are much higher than the IRS allows, you have three primary "legal loopholes" to explore:

The "Health and Welfare" Exception

The IRS Internal Revenue Manual (IRM) allows managers to deviate from the standards if you can prove the expense is necessary for the health and welfare of your family. Examples include:

• Specialized schooling for a child with a disability.
• High utility bills due to medical equipment (e.g., oxygen concentrators).
• Legal fees required for your income (e.g., maintaining a professional license).

The Six-Year Rule (The "Six-Year Payoff")

If you can prove that you can pay off your total tax debt within six years, the IRS is often more lenient. They may allow "conditional" expenses—like private school tuition or high credit card payments—that are normally prohibited in a hardship case.

Using 2026 Inflation Adjustments

In 2026, the IRS updated the Housing and Utility caps to reflect the massive increase in home insurance premiums. If you are using 2024 or 2025 forms, you are likely leaving money on the table. Always ensure your CPA is using the most current Collection Financial Standards tables.

5. Frequently Asked Questions (FAQ)

Q: Does the IRS allow for credit card payments?A: Generally, no. The IRS views credit card debt as "unsecured." They believe they should be paid before your credit card company. The only exception is if the credit card is the only way you pay for a "necessary" expense.

Q: Can I keep my 401(k) contributions?A: In a strict CNC hardship case, the IRS often asks you to stop voluntary 401(k) contributions to pay your taxes. However, if your employer mandates a contribution as a condition of employment, it may be allowed.

Q: What if I live in a high-cost area like San Francisco or NYC?: The IRS Housing and Utility standards are much higher in these areas (often exceeding $4,000 for a family of four), but they still may not cover the actual cost of a high-end rental.

Conclusion: Don't Go Into the "Means Test" Blind

The IRS National Standards are designed to protect the government's interest, not your lifestyle. Before you call the IRS to request Currently Not Collectable status, you must run these numbers yourself.