You’re dealing with two problems at once: your health and the IRS. Together, they can feel impossible to handle.
The IRS does have rules that recognize medical hardship. They know health costs can wreck a budget. But they won’t assume anything about your situation. You must prove it using their forms and their language.
This guide explains which medical expenses matter, what the IRS means by “hardship,” and how to build a strong case for tax relief.
What Does the IRS Consider a Hardship?
Hardship and Currently Not Collectible (CNC) status mean the IRS agrees that paying them would prevent you from covering basic living expenses such as housing, utilities, food, healthcare, and transportation.
The Taxpayer Advocate Service describes “significant hardship” as being unable to cover necessities like food, clothing, shelter, or medical care because of IRS collection actions.
But how do medical expenses fit into this picture? Medical costs reduce the money you have available for taxes. When treatment, prescriptions, or care significantly limit your ability to pay, the IRS may consider this in its hardship evaluation. But you must provide detailed proof, and approval isn’t guaranteed.
Retirement Plan “Medical Hardship Withdrawal” vs IRS Hardship Relief
401(k)/IRA Medical Hardship Withdrawals
Retirement plans may allow hardship withdrawals for unreimbursed medical expenses that meet the IRS definition of deductible medical expenses. While these expenses must qualify as medically necessary, the 7.5% of adjusted gross income (AGI) threshold only applies to tax deductions, not to hardship withdrawals. Retirement plan administrators evaluate hardship based on financial need, not deduction eligibility.
How This Is Different from IRS Tax Debt Hardship
A retirement hardship withdrawal gives you access to retirement funds to cover medical bills. IRS hardship relief deals with your ability to pay tax debt.
These situations overlap when someone withdraws from a 401(k) for medical bills and then owes tax and penalties. You can still argue hardship even if the withdrawal created part of the tax problem.
What Is Considered a Qualifying Medical Expense?
According to Publication 502, a qualifying expense must be for:
- The diagnosis, cure, mitigation, treatment, or prevention of disease.
- Payments to doctors, surgeons, dentists, psychologists, and psychiatrists.
- Hospital, clinic, and nursing services.
- Prescriptions and insulin.
- Medical equipment such as wheelchairs or hearing aids.
Overlooked But Powerful Medical Expenses
Many people miss valid deductions because they don’t review their expenses closely enough.
- Medically necessary home modifications like ramps and safety rails.
- Travel tied to treatment, including mileage, parking, and tolls.
- Special food or equipment prescribed for medical reasons.
- In-home caregivers or nursing services tied to documented medical needs.
Expenses the IRS Typically Rejects
The IRS is strict about the difference between “medical treatment” and “general health.” They will typically reject:
- Cosmetic procedures unrelated to disease or trauma.
- General wellness such as gym memberships or massages.
- Supplements or alternative treatments with no medical documentation.
Lodging and Travel: The Forgotten Medical Expenses that Strengthen Hardship Claims
Lodging Medical Expense Deduction Rules
If you must travel for care, your hotel bill might be a medical expense. The IRS generally allows a deduction of up to $50 per night for each person.
This applies if the lodging is primarily for and essential to medical care. The care must be provided by a doctor in a licensed hospital or similar facility. The trip can’t have any personal or vacation element, and the lodging can’t be lavish. If a parent travels with a sick child, the parent’s lodging also counts up to the $50 limit.
Transportation Costs
You can deduct out-of-pocket expenses for your car when you use it for medical reasons. This includes the standard medical mileage rate, plus parking fees and tolls.
If you must use a bus, train, ambulance, or plane to get medical care that isn’t available locally, those fares are also included.
Why These Matter in a Hardship File
Listing these expenses helps show that your medical burden is unusually high. Regular travel for treatment drains your time and your bank account. Many taxpayers fail to list these costs. Including them strengthens your argument that you have no disposable income for the IRS.
Child and Dependent Care, Disability, and IRS Publication 503
IRS Publication 503 explains the credit for Child and Dependent Care Expenses. This usually covers costs you pay for the care of a qualifying individual so you can work or look for work. In hardship cases, these expenses show why you cannot add IRS payments without jeopardizing care.
These may include:
- Day programs for dependent adults.
- After-school care for a child with special needs.
- Specialized caregiving that allows you to maintain employment.
How to Calculate Your Medical Expense Deduction for 2026
You can’t deduct every single dollar of medical spending on your tax return. You can only deduct the amount of your total unreimbursed medical expenses that exceeds 7.5% of your Adjusted Gross Income (AGI).
Let’s say your AGI is $40,000. 7.5% of $40,000 is $3,000. This $3,000 is your “threshold.”
If you spent $9,000 out-of-pocket on medical care, you subtract the threshold ($3,000) from your total ($9,000). Your deduction is $6,000.
Calculating this deduction may reduce past tax liability if you amend your returns, and documenting these expenses can support financial hardship claims when applying for Currently Not Collectible status or an Offer in Compromise.
Medical Expenses that Move the Needle in IRS Hardship Decisions
The IRS gives extra weight to expenses that meaningfully affect your monthly budget. These fall into three categories:
High-Impact Recurring Expenses
The IRS pays attention to costs that happen every month without fail. These reduce your “monthly disposable income,” the number the IRS uses to calculate what you can pay.
- Chemotherapy, radiation, and dialysis.
- Long-term therapy for mental health.
- Prescription regimes that cost hundreds of dollars monthly.
One-Time but Catastrophic Costs
These expenses explain why you fell behind in the first place.
- Emergency surgery and ICU stays.
- Trauma care after a major accident.
- Out-of-network bills that insurance refused to cover.
Long-Term Disability and Adaptive Needs
These costs show that your financial needs will remain high for a long time.
- Wheelchairs, scooters, and mobility devices.
- Stair lifts and bathroom modifications.
- Ongoing physical or occupational therapy.
What Proof Do You Need for Financial Hardship?
Medical Evidence the IRS Takes Seriously
The IRS looks for clear, consistent medical documentation that shows your condition, the cost of treatment, and how the situation affects your ability to earn money. Typical documents include:
- A doctor’s statement describing your diagnosis, functional limits, treatment plan, and whether improvement is expected.
- SSDI or SSI award letters and current benefit summaries.
- VA disability rating decisions and payment records.
- Hospital admission and discharge summaries.
- Itemized bills and statements for treatment, therapy, and tests.
- Explanation of Benefits (EOBs) showing what insurance did and did not cover.
- Pharmacy receipts for recurring prescriptions.
- Written statements from caregivers or social workers explaining your level of dependence.
- Proof of medical-related income loss, such as employer termination letters, disability determinations, or reduced-hours notices.
These documents show the IRS that your medical situation is ongoing, medically necessary, and directly affecting your financial stability.
Financial Evidence That Supports Hardship
The IRS needs to see that your medical costs and reduced income leave no room for tax payments. Strong financial evidence includes:
- A complete Form 433-A or 433-F listing all income sources, medical costs, care expenses, and living expenses.
- Bank statements that show your actual monthly cash flow.
- Proof of reduced earnings due to illness or caregiving.
- Insurance premium bills and long-term care payments.
- Records of loan balances, rent, utilities, and transportation costs.
This evidence helps the IRS understand the full picture, not just the medical side of the hardship.
Documentation Mistakes That Hurt Your Case
- Sending only a few large medical bills instead of showing the full treatment pattern.
- No doctor’s letter explaining medical necessity. No timeline linking your health condition to income loss.
- Leaving gaps or inconsistencies in Form 433-A or 433-F.
- Not explaining why other living expenses cannot be reduced.
When the IRS sees missing pieces, they assume you can afford more than you actually can.
Key IRS Forms Used in Medical Hardship Cases
Serious medical-hardship files usually involve one or more of these forms:
- Form 433-A: Full financial statement for individuals, used in Offer in Compromise and field collection cases.
- Form 433-F: Shorter financial statement used by IRS call centers.
- Form 433-B: Financial statement for businesses, relevant if you operate or previously operated a business.
- Form 656: The Offer in Compromise form.
These forms collect information about your income, monthly expenses, assets, and debts. The IRS uses this information to calculate your reasonable collection potential and determine whether CNC, a settlement, or a reduced payment plan is appropriate.
How Medical Hardship Influences Key IRS Relief Options
Currently Not Collectible (CNC): The IRS pauses collection when paying them would block you from covering necessary living costs such as food, rent, and medical care.
Offer in Compromise (OIC): Medical hardship can lower your reasonable collection potential, making a settlement more realistic.
Installment Agreements (Including Partial-Pay): High medical costs can justify reduced monthly payments, including partial-pay terms.
Penalty Abatement for Medical Reasons: Hospitalization, serious illness, or disability can qualify as reasonable cause for late filing or payment.
Your Health Comes First – Your Tax Strategy Should Reflect That
The IRS may recognize medical hardship if you provide strong documentation, but relief is never automatic. You must prove that paying your tax debt would prevent you from covering essential expenses. Even then, approval isn’t guaranteed. The IRS decides based on your full financial and medical profile.
If you are dealing with significant medical expenses, contact us for a free consultation. We will review your medical expenses, identify what the IRS will care about most, and map your next move.
Frequently Asked Questions
Do medical bills qualify you for IRS hardship protection?
Yes. Documented medical bills and ongoing treatment costs are key factors the IRS uses to decide whether paying your tax debt would create hardship.
Who is eligible for the IRS hardship program?
You may qualify if paying your tax debt would prevent you from covering basic living costs such as housing, food, utilities, and medical care. Disabled taxpayers and those with significant medical expenses often meet the requirements when income is low and assets are limited.
What qualifies for medical hardship withdrawal?
For retirement plans like a 401(k) or IRA, hardship withdrawals are typically allowed for unreimbursed medical expenses. These must qualify under IRS medical deduction rules, although the 7.5% AGI threshold applies only to tax deductions, not to hardship withdrawal approval. This is separate from IRS tax debt hardship, but the two situations often overlap.
What is considered a qualifying medical expense?
A qualifying expense is any cost primarily for the diagnosis, cure, mitigation, treatment, or prevention of disease. This includes doctor visits, hospital care, prescriptions, medical equipment, and certain travel and lodging costs. IRS Publication 502 provides the full definitions.
What does the IRS consider a hardship?
For tax debt, hardship means that paying the IRS would prevent you from covering basic allowable living expenses. These include housing, food, utilities, and necessary medical care. This condition is often called Currently Not Collectible (CNC) status.
What proof do you need for financial hardship?
You need both medical and financial evidence. This includes itemized medical bills, Explanation of Benefits (EOB) statements, doctor letters, and disability determinations. You also need proof of income loss and a completed Form 433-A or 433-F showing you have no money left after paying for essentials.
Is lodging a deductible medical expense?
Yes, within specific limits. The IRS generally allows you to deduct up to $50 per night per person when lodging is primarily for and essential to medical care. Strict conditions apply, and there can be no significant element of personal pleasure or vacation involved.
How do medical expenses affect tax relief eligibility?
Medical expenses reduce your “ability to pay” in the eyes of the IRS. This can support a request for CNC status, lower the settlement amount in an Offer in Compromise, reduce your monthly installment payment, or help justify penalty abatement.
Can disability qualify you for IRS tax relief?
Yes. Disability is a major factor in hardship decisions. When documented through SSDI or VA determinations and linked to reduced income or high medical costs, disability can justify reduced settlement values and protection from collection actions.
If you want a deeper breakdown of how disability affects IRS tax relief, see our guide on Tax Relief for Disability
What if an IRS levy is stopping me from getting urgent medical care?
You can request help from the Taxpayer Advocate Service (TAS) by filing Form 911. If an IRS action causes “significant hardship”, such as blocking funds needed for surgery or prescriptions, TAS can order the IRS to stop the levy. This is an emergency safety valve when standard channels fail.