IRS 2024 Allotments for Monthly Living Expenses 

If you are applying for certain payment plans, currently not collectible status, or a tax settlement, you will need to prove to the IRS that you’re spending most if not all of your disposable income on your tax obligations. To create consistency, the IRS uses a set of financial standards that show how much the agency believes you need to spend on essentials, based on where you live and your family size.

The IRS will go to great lengths to collect the taxes they are owed. However, they never want to do so in a way that leaves taxpayers unable to meet their basic needs and fulfill their other financial obligations. By extension, when you explore payment options, the IRS does allow you to exclude certain reasonable expenses in your calculations. 

Allowable living expenses account for the money you need to provide for your family and meet your basic needs. This guide explains when these standards come into play, how the IRS calculates the standards, and what to do if some of your expenses exceed the standards.

When Does the IRS Use Allowable Living Expenses?

The IRS may utilize allowable living expenses to determine how much money a taxpayer is able to put toward their tax debt. As indicated above, they generally expect taxpayers to put all of their disposable income toward their tax liability. This doesn’t necessarily mean the actual amount of money you put towards your bills and daily living expenses—it refers to any money left over after the IRS excludes what they consider to be reasonable and necessary.

Allowable living expenses come into play in a variety of payment options including the following.

Installment Agreement

If you owe over a certain amount, cannot make the minimum monthly payment, or have a history of defaulting on payment agreements, you may need to provide a financial disclosure when setting up your payment plan. If you are spending over the financial standards, the IRS may not approve your request. Additionally, IRS revenue officers may request a Collection Information Statement whenever they feel it’s necessary. 

Partial Payment Installment Agreement

A partial payment installment agreement allows taxpayers who cannot afford the monthly minimum payment for an installment agreement to partially pay their tax debt off. Qualified taxpayers make approved payments until the Collection Statute Expiration Date. Then, they do not have to pay the rest of the debt, as it expires on that date.

Since the IRS does not receive full payment for the tax liability, they want to verify that approved taxpayers are truly putting everything they can toward their tax debt. They do so by taking a look at the taxpayer’s income and expenses and then comparing those amounts to the individual’s allowable living expenses. Any funds left over between the taxpayer’s income and allowed expenses are expected to be used to pay down their tax debt.

Offer in Compromise

Allowable living expenses are commonly utilized when taxpayers request an offer in compromise. With an offer in compromise, a taxpayer can make one partial payment toward their tax debt or make several smaller monthly payments. Upon fulfilling this obligation, the rest of their tax debt is written off. 

This often results in substantial losses for the IRS, so they require extensive financial documentation from taxpayers. Taxpayers are allowed to exclude their allowable living expenses, but everything else, including most of the equity in their assets, should go to bolstering their offer in compromise.

What Are IRS Allowable Living Expenses?

The phrase allowable living expenses refers to the expenses the IRS considers necessary. For example, the IRS may consider a standard mortgage payment in line with house costs for the geographic area to be necessary, but they may not consider a mortgage for a multimillion-dollar mansion to be necessary. 

Per the IRS, necessary expenses include those that are required to support a taxpayer’s health, welfare, and production of income. This also includes the taxpayer’s family members. Allowable living expenses are broken down into several categories to make it easier for taxpayers to figure out what expenses will and will not be excluded. Some of the expenses are set nationally while others vary based on where you live.

How the IRS Categorizes Allowable Living Expenses

The different types of allowable living expenses are generally broken down into two primary categories: national standards and state-specific standards. Expenses that fall under the umbrella of national standards are the same for taxpayers in every part of the country, while state-specific standards are tailored to each state and county to account for differences in each area’s cost of living.

National Standards

Several types of expenses are calculated based on national standards:

• Food
• Housekeeping supplies
• Apparel and services
• Personal care products and services
• Miscellaneous expenses: This category is meant to cover anything that a taxpayer needs to fulfill their financial obligations and earn a living, but that does not fit in any of the previous categories. It may also cover anything from the previous categories that exceeds the national standard, as taxpayers can roll over that extra into the miscellaneous expenses category until they max it out.
• Out-of-pocket healthcare: Everyone has out-of-pocket healthcare expenses, and this type of allowable living expense ensures that taxpayers can meet these needs without having to sacrifice their health and well-being for a tax payment.

Location-Specific Standards

Transportation and housing expenses are calculated on a county-by-county basis. This is due to dramatic differences in housing and transportation costs between different parts of the country and even between different areas of the same state.

The housing part of this standard accounts for rent or mortgage and utilities plus property taxes, interest, maintenance, insurance, repairs, gas and electric, water, garbage collection, home phone service, cell phone service, and Internet service.

Transportation standards include both vehicle ownership and public transportation costs. 

There is a national standard for car loan payments, and a local standard for vehicle ownership costs such as maintenance, insurance fuel, repairs, registration, licensing fees, parking, tolls, and inspections. Under this category, families can claim up to two vehicles. Single taxpayers can typically only exclude the expenses for one automobile. If the taxpayer has no car payment, that amount is not included in their allowable living expenses.

The public transportation exclusion is actually based on national transit fares, not on state fare calculations. Taxpayers who both own a vehicle and use public transportation can include both expenses, assuming that both forms of transportation are necessary for the family’s needs.

How State-Specific Standards Vary

As you may expect, there are significant differences in expenses between different areas of the United States. It’s important to look at the correct metropolitan area while calculating what the IRS will or will not allow you to exclude.

Comparing Different States

Let’s look at our home state of Michigan as an example. As of 2024, families that use public transportation can exclude up to $215 for their transportation expenses. Taxpayers can also exclude a monthly payment of $619 for one vehicle or $1238 for two vehicles.

Additionally, if a family has one vehicle in the Detroit area, they can exclude up to $299 for operating expenses. For two vehicles, the allowed exclusion is $598. To compare that to an area that’s dramatically more expensive, consider San Francisco. The transportation exclusions in that area are $348 for one vehicle and $696 for two vehicles.

In the housing expenses category, there are even more dramatic differences. We’ll use Oakland County in Michigan as our primary example. Here, the housing exclusion for a family size of one is $1,970. This increases to $2,762 for a family of five. We’ll compare that to Loudoun County, Virginia, one of the most expensive counties in the United States. There, the exclusion for a family size of one is $3,074 per month. A family of five can exclude up to $4,310 for housing.

2024 Standard Living Expenses

Each year, the IRS updates its allowable living expenses to account for inflation. As of 2024, the allowed national exclusions for a family size of one are:

• Food: $458
• Housekeeping supplies: $44
• Apparel and services: $87
• Personal care products and services: $48
• Miscellaneous: $171

These numbers increase for each added family member, ending with these allowable standards for four family members:

• Food: $1,143
• Housekeeping supplies: $82
• Apparel and services: $300
• Personal care products and services: $97
• Miscellaneous: $405

For each additional family member beyond a family of four, the IRS allows for an additional total allowance of $386.

How Allowable Expenses May Affect Your Payment Options

The IRS will use the allowable living expenses for your family size and location to determine how much you can pay toward your tax debt, whether you are seeking an installment agreement in certain situations, partial payment installment agreement, or offer in compromise. 

They will look extensively at any discrepancies within your expenses if they fall outside the allowable exclusions. If your actual expenses fall below the allowed amount, the IRS will generally reduce your exclusion. For example, if you are permitted $458 for food per month but only spend $250 on food, you can only exclude $250. However, if you report food spending of $1,200, the IRS will hold you to the $458 maximum unless you have a very good reason to show why the full $1,200 should be excluded—for example, an illness that requires a special diet.

Medical expenses are the exception to the rule. In that category, you can claim the allowable amount even if you spend less.

If you have expense areas where you fall significantly above the allowable living expenses, the IRS will base your ability to pay on what they allow, not the expenses you actually incur. This means that if your spending is much higher than what’s allowed in multiple categories, the IRS may expect you to make changes in lifestyle, housing, or general spending so that you can devote more money to repaying your tax bill.

Planning for Changes in Allowable Living Expenses

Allowable living expense numbers are updated every year to account for inflation, so if your tax issues are expected to last more than a year, it’s important to stay on top of the IRS’s new numbers each year. 

For example, if you’re on a partial payment installment agreement, your monthly payment may be based on 2024 numbers. If the allowable expenses increase dramatically in 2025, that may give you some space to request a lower monthly tax payment so you can still provide for your family.

These changes can also go the other way. If your income increases substantially from one year to the next, you can expect the IRS to request an updated Collection Information Statement. If your ability to pay has changed, they may require you to make higher monthly payments.

Finding the Latest Information

Keeping up with the new standards each year can help you stay on top of your finances and ensure that your monthly tax payments fit within your budget. The latest numbers from the IRS can be found here:

• 2024 Allowable Living Expenses National Standards
• 2024 Allowable Living Expenses Transportation Standards
• 2024 Allowable Living Expenses Housing Standards, broken down by state and county

If you’re looking into different payment methods for your IRS debt, it’s crucial to understand the agency’s allowable living expenses and how they may affect the payments they expect you to make. Not sure how these numbers may impact your payment options and budget? It’s time to talk to a tax professional. 

At W Tax Group, we help taxpayers like you analyze their tax liability needs and find the right payment option for their financial well-being. Call us at 877-500-4930 or reach out online to set up a consultation.