The IRS Collection Financial Standards, in Plain English

The first time most people see an IRS financial analysis, they are offended. "I spend $1,400 a month on groceries for my family. Who are they to tell me $1,000?" That reaction is understandable. It is also beside the point. The IRS is not auditing your grocery list. It is applying a table.

That table is the Collection Financial Standards. The Internal Revenue Manual also calls them the Allowable Living Expense standards, or ALE. They decide what counts as a reasonable basic living expense in almost every hardship, installment agreement and offer analysis. If you want CNC status, you need to understand them.

Why the standards exist

IRM 5.15.1.2 says the standards "are guidelines established by the IRS to provide consistency in certain expense allowances such as food and household expenses, medical expenses, housing and transportation." Consistency is the goal. Without a table, two revenue officers in the same office could reach opposite answers on identical families.

The standards are also how the IRS turns the legal definition of hardship into dollars. Treasury Regulation 301.6343-1(b)(4) says hardship means being unable to pay reasonable basic living expenses. The standards are the IRS's measure of "reasonable."

The three types of allowable expenses

IRM 5.15.1.8 sorts allowable expenses into three groups, all tested against what it calls the necessary expense test: expenses "necessary to provide for a taxpayer's and his or her family's health and welfare and/or production of income."

1. Allowable Living Expenses, based on the National and Local Standards.
2. Other Necessary Expenses, which meet the necessary expense test and are normally allowed, such as court-ordered payments, child care, and current taxes.
3. Other Conditional Expenses, which may not meet the test but may be allowed based on the circumstances of the case.

This page covers the first group. Other expenses are covered in other necessary expenses.

National Standards

National Standards apply everywhere in the country. There are two:

• Food, Clothing and Other Items. One combined amount covering food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous. IRM 5.15.1.8 says these come from the Bureau of Labor Statistics Consumer Expenditure Survey.
• Out-of-Pocket Health Care. A per person monthly amount for medical services, prescription drugs and medical supplies, based on Medical Expenditure Panel Survey data. It is higher for people 65 and older.

Here is the good news. National Standards are allowed in full without questioning what you actually spend. IRM 5.15.1.8 says taxpayers "are allowed the total National Standards amount monthly for their family size, without questioning the amounts they actually spend." If you spend less, you still get the full amount. See the National Standards for food, clothing and other items and the out-of-pocket health care standard.

Local Standards

Local Standards vary by where you live. There are two:

• Housing and Utilities. Set for each county and household size, derived from Census and BLS data. It covers mortgage or rent, property taxes, insurance, maintenance and repairs, and utilities including cable, internet, telephone and cell phone.
• Transportation. A nationwide ownership cost for a loan or lease payment, plus an operating cost that varies by Census Region and metropolitan area. There is also a single nationwide public transportation allowance for people with no vehicle.

Local Standards work differently from National Standards. IRM 5.15.1.8 says taxpayers "will normally be allowed the local standard or the amount actually paid monthly, whichever is less." Spend less than the standard, and you get what you spend. Spend more, and you get the standard unless you can justify a deviation. See the housing and utilities standard and the transportation standards.

The current numbers

The figures below are from the IRS Collection Financial Standards with an effective date of June 29, 2026. The IRS updates them periodically, so check irs.gov for the version in effect when your case is analyzed.

The health care standard is $90 per person under 65 and $163 per person 65 or older. For transportation, the ownership cost is $703 per vehicle per month. The operating cost depends on location; for one vehicle it is $291 in the South Census Region and $320 in the Tampa metropolitan area. The public transportation allowance is $220. Housing depends on county; for a two-person household it is $2,435 in Hillsborough County, Florida.

Standards are guidelines, not ceilings

This is the sentence I quote most often to collection employees. IRM 5.15.1.8: "National and local expense standards are guidelines. If it is determined a standard amount is inadequate to provide for a specific taxpayer's basic living expenses, allow a deviation." The taxpayer must provide reasonable substantiation, and the employee must document the file.

There are limits. A deviation from the local standard "is not allowed merely because it is inconvenient for the taxpayer to dispose of valued assets or reduce excessive necessary expenses." And IRM 5.15.1.9 says no deviation is allowed for the miscellaneous component of the National Standards. How to argue for a deviation is the subject of expenses above the IRS standards.

Who counts in your household

Household size drives both National Standards and the housing standard. IRM 5.15.1.8 says the number of persons allowed should generally be the same as the taxpayers and dependents claimed on the current year income tax return, with reasonable exceptions such as foster children or children whose adoption is pending. If your household and your tax return do not match, expect to explain why.

Three months, or a year

Expenses are usually reviewed over recent months, but IRM 5.15.1.8 adds that if the taxpayer or the IRS believes "the last three months of expenses are not reflective of the actual yearly expenditures, additional months, up to one year, may be reviewed." Seasonal utility bills, irregular medical costs, and annual insurance premiums are good reasons to ask for the longer look.

What the standards do not cover

The standards do not apply to businesses. IRM 5.15.1.2 says the ALE standards "are not applicable to corporations, partnerships, Limited Liability Companies (LLC), or for any business expenses." Business expenses are measured by whether they are necessary to generate the business income. A sole proprietor gets both analyses: business expenses on the business side and the standards on the personal side.

Taxpayers who live outside the United States are measured against separate International Collection Financial Standards using an IRS calculator, according to IRM 5.15.1.8. Puerto Rico residents still use the housing and utility standards established for Puerto Rico.

How the IRS should talk to you about the standards

The handbook has instructions for employees that are worth knowing. IRM 5.15.1.2 says to "Emphasize to the taxpayer how much the IRS expects from them rather than how the IRS expects them to spend their money." It continues: "Do not tell the taxpayer what he/she can or cannot own or spend."

In other words, the standards set a payment expectation. They do not dictate your grocery list. If the analysis says you can pay $300 a month, how you rearrange your budget to find that $300 is your business. If the analysis says you can pay nothing, the IRS should be talking about CNC, not lecturing you about cable television.

How to use this

Before you fill out any collection form, build your own budget twice. First, write down what you really spend. Second, rewrite it using the standards: full National Standards, and the lesser of actual or standard for housing and transportation. Then add other necessary expenses. If the second budget still meets or exceeds your gross income, you have the start of a hardship case. If it does not, you have learned that before the IRS told you.

The standards are not a judgment about your life. They are the arithmetic the IRS will use. Learn the arithmetic, and you stop being surprised by the answer.