Before you read further — which describes you?
Quick Answer
IRS Allowable Living Expenses (ALE) are the standardized expense categories the IRS uses to calculate a taxpayer’s ability to pay tax debt. Also called Collection Financial Standards. The short version is that ALE has four categories: (1) National Standards for food, clothing, out-of-pocket health, and personal care; (2) Local Standards for housing and utilities (by county); (3) Local Standards for transportation (vehicle ownership and operating costs by MSA); and (4) Necessary Expenses that fall outside the standards. The IRS allows the lesser of actual expenses or the standards — with some ability to document above-standard necessary expenses. ALE drives installment agreement payments, PPIA calculations, OIC Reasonable Collection Potential, and CNC eligibility.1
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Allowable Living Expenses drive every collection resolution where financial disclosure matters. Understanding how the standards work — and what expenses can be documented above the standard — is the difference between a sustainable payment and an unsustainable one. This chapter walks through the four categories and how they apply to installment agreements, OIC, CNC, and PPIA.
Our firm has applied ALE analysis to thousands of collection resolutions. For related framework, see How the IRS Conducts Financial Analysis.
The Four ALE Categories
| Category | Coverage | Method2 |
|---|---|---|
| National Standards | Food, clothing, out-of-pocket health, personal care | Fixed by household size |
| Local Housing / Utilities | Mortgage/rent, utilities, insurance, maintenance | Capped by county + household size |
| Local Transportation | Vehicle ownership + operating costs | Capped by MSA + vehicle count |
| Necessary Expenses | Above-standard documented costs | Case-by-case justification |
Quick Reference
Jump to the ALE category: National Standards, Local Housing / Utilities, Local Transportation, or Necessary Expenses. For the ALE lookup table, see the ALE document reference. To analyze your ALE, a 15-minute consultation is free.
1. National Standards: Food, Clothing, Health, Personal Care
National Standards are fixed amounts by household size, updated annually by the IRS. They cover food, clothing, personal care, and out-of-pocket healthcare costs (apart from insurance premiums). The standards are lower than average consumer spending by household size.
If this is you: Your case involves ALE-based calculation. National Standards apply regardless of where you live — no geographic adjustment. Total for a 4-person household is typically around $2,800 monthly for all National Standards combined.
National Standards Strategy
- Use the IRS National Standards table. Available on IRS.gov.
- Apply by household size. Adjust for actual dependents.
- National Standards are the floor. Cannot be reduced below standard.
- Documentation not required. Standards apply without proof.
- Combine with local standards for total ALE.
2. Local Housing and Utilities
Local Housing and Utilities standards cap the taxpayer’s allowable housing expenses based on county of residence and household size. The standard covers mortgage or rent, utilities (electric, gas, water, phone, internet), insurance, maintenance, and repairs.
If this is you: Your housing cost exceeds the local standard for your county. The IRS allows the lesser of actual or standard, so the excess is typically disregarded. Above-standard housing may be justifiable as necessary expense in specific circumstances.
3. Local Transportation
Local Transportation standards cover vehicle ownership (up to 2 vehicles per household) and operating costs based on MSA. The ownership standard provides an amount for car payment or lease; the operating standard covers fuel, insurance, maintenance, parking, and fees.
If this is you: You have vehicle costs for work or family. Two vehicles per household qualify for ownership allowance. Above-standard vehicle costs require necessary-expense justification — typically work-related specific vehicle or large family.
4. Necessary Expenses: The Case-Specific Category
Necessary Expenses are above-standard costs the taxpayer documents as required for health, production of income, or statutory obligation. Under IRM 5.15.1, certain expenses above the standards can be allowed when documented and necessary.3
If this is you: You have legitimate expenses above the standard — medical, dependent care, court-ordered payments, work-required costs. Documentation and justification under IRM 5.15.1 can support above-standard allowance. The IRS has specific categories that qualify.
Necessary Expense categories:
- Medical expenses above national standard. Chronic conditions, specific treatments, dependents.
- Life insurance. Term policies on taxpayer or dependents with dependents.
- Court-ordered payments. Alimony, child support, judgments.
- Secured or legally-perfected debts. Student loans (in repayment), secured consumer debt.
- Dependent care. Childcare, elder care necessary for work.
- Education expenses (limited). Job-required training.
- Out-of-pocket work expenses. Union dues, required equipment.
Actual expenses materially above ALE standards? Documenting necessary expenses properly under IRM 5.15.1 can produce meaningfully lower monthly payments. Book a consultation to scope the documentation strategy.
ALE Document Lookup
| Resource | Purpose |
|---|---|
| IRS Collection Financial Standards | Published standards by category |
| Form 433-F | Collection Information Statement (simplified) |
| Form 433-A | CIS (full individual) |
| Form 433-B | CIS (business) |
| Form 433-A (OIC) | OIC individual financial |
| IRM 5.15.1 | Financial Analysis Handbook |
| Publication 594 | IRS Collection Process |
| National Standards tables | Food, clothing, health by household size |
| Local Standards tables | Housing, utilities, transportation by geography |
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ALE and the CSED
- ALE analysis drives ability-to-pay calculation. Used in IA, PPIA, OIC, CNC.
- CSED: 10 years from assessment. Independent of ALE.
- ALE is re-evaluated periodically. Standards updated annually by IRS.
- PPIA 2-year review uses current ALE.
ALE Application in Resolution Outcomes
| Resolution | ALE Application |
|---|---|
| Non-streamlined IA | Income − ALE = monthly payment |
| PPIA | Income − ALE = monthly payment; balance discharges at CSED |
| OIC RCP | Future income = (income − ALE) × 12 or 24 months |
| CNC | Income ≤ ALE means CNC eligible |
| Streamlined IA (under $50K) | No ALE analysis required |
| Guaranteed IA (under $10K) | No ALE analysis required |
The ALE Analysis Escalation Pathway
Initial ALE Calculation
Form 433-F or 433-A captures actual expenses. IRS applies standards — lesser of actual or standard.
Necessary Expense Justification
Above-standard expenses documented and justified under IRM 5.15.1. Medical, dependent care, court-ordered, secured debt.
Disagreement to Appeals
Disagreement with IRS ALE calculation can be appealed via CAP (Form 9423) or CDP (Form 12153). Appeals reviews the expense analysis.
The First 48 Hours of ALE Analysis
- Pull IRS Collection Financial Standards. For your household and geography.
- Compile actual expenses. Rent/mortgage, utilities, transportation, etc.
- Apply the lesser-of rule. Actual or standard per category.
- Identify necessary expenses above standards. Document justification.
- Compute monthly disposable income. Net income − total ALE.
- Match result to appropriate resolution. IA, PPIA, CNC, or OIC.
- Document everything for submission.
The ROI Question
A proper ALE analysis with documented necessary expenses produces lower monthly payments than pro se submissions. For balances over $50,000, careful ALE documentation can reduce monthly payments by hundreds of dollars over years — thousands in total savings.
When to Engage an Attorney for ALE Analysis
- Balance over $50,000. Full ALE analysis required.
- Complex family or medical expenses. Necessary-expense justification.
- Court-ordered payments. Integration with ALE.
- Self-employment with variable income.
- High geographic cost of living. Above-standard housing documentation.
- Prior ALE disagreement with IRS.
Any of the above apply?
A 15-minute consultation is free. We run ALE analysis and prepare documentation.
Frequently Asked Questions
What are IRS Allowable Living Expenses?
Standardized expense categories the IRS uses to calculate ability-to-pay. Four categories: National Standards (food, clothing, health, personal care), Local Housing / Utilities, Local Transportation, and Necessary Expenses above the standards. Sometimes called Collection Financial Standards. Drive installment agreement payments, OIC RCP, and CNC eligibility.
How does the IRS calculate my ability to pay?
Net income minus Allowable Living Expenses equals monthly ability-to-pay. Net income is gross income minus taxes and mandatory withholdings. ALE is the sum of National Standards (fixed by household size), Local Housing/Utilities (by county), Local Transportation (by MSA), and documented Necessary Expenses. The difference is the IRS’s proposed monthly payment.
What is included in National Standards?
Food, clothing, personal care, and out-of-pocket healthcare (not insurance premiums). Standards are fixed by household size — typically $900-$1,500 for a single person, scaling up for larger households. The IRS updates the standards annually.
Can I claim expenses above the IRS standards?
Yes, for documented Necessary Expenses. Above-standard medical costs, court-ordered payments, dependent care necessary for work, secured debt in good standing, and specific work-required expenses can qualify. IRM 5.15.1 sets the framework. Documentation is required.
Does the IRS allow my actual expenses?
The IRS allows the lesser of actual or standard for each category. Below-standard actual expenses are used as actual. Above-standard actual expenses are capped at the standard unless justified as Necessary Expenses under IRM 5.15.1.
What is the IRS standard for housing?
Local Standard by county and household size. The standard covers rent or mortgage, utilities, insurance, maintenance, and repairs. In high-cost California counties, the standard often substantially exceeds $3,000 monthly for a family. Above-standard housing can be documented as Necessary Expense in some situations.
Can I get an exception for my car?
Yes, for work-required specific vehicle or large family needs. Local Transportation standards cover up to 2 vehicles. Above-standard costs — expensive vehicle required for work, long commute — may qualify as Necessary Expense under IRM 5.15.1.
Do credit card payments count as expenses?
Unsecured credit card minimum payments are generally NOT Necessary Expenses under IRM 5.15.1. Secured debt payments (car loan, mortgage) are allowed. Student loans in repayment may qualify. Credit card balances often must be treated as unsecured debt available to pay tax.
What happens if my expenses exceed the IRS standards?
The IRS typically uses the standard unless Necessary Expense documentation supports the above-standard actual. A taxpayer whose actual expenses exceed the standards without documented necessary expenses must adjust spending or accept the standard-based monthly payment.
How often does the IRS update Collection Financial Standards?
Annually. National Standards update each spring. Local Standards (housing, transportation) also update annually by county and MSA. A resolution in 2025 uses 2025 standards; a 2-year review in 2027 uses 2027 standards.
Are medical expenses Allowable Living Expenses?
Part of National Standards includes out-of-pocket healthcare. Above-standard medical costs — chronic conditions, specific treatments, dependent medical care — can be documented as Necessary Expenses. Medical insurance premiums are separately allowable.
Can I include my retirement contributions as expenses?
Generally no. Voluntary retirement contributions (401(k), IRA) are not treated as Necessary Expenses. Mandatory retirement withholdings (certain government pensions) may qualify. Available retirement contributions are typically considered funds that could go to tax.
Do I need to document my expenses for ALE?
For standard categories, no — the IRS applies standards without documentation. For Necessary Expenses above standards, yes — documentation is required. Receipts, contracts, court orders, medical records. The quality of documentation drives the IRS’s acceptance of above-standard amounts.
If you have read this far, you have a notice and you are trying to understand it before doing anything that makes it worse. That instinct is correct.
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Next Steps in This Guide
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