It’s a mistake to believe that state tax debt is any less serious than federal tax debt. Failing to file or pay your state taxes can land you in hot water with some serious penalties.
Each state has its own rules and requirements regarding how residents need to file taxes, so where you file impacts your route to resolving a state tax problem. The key thing to know is that most states have tax laws and processes that are nearly identical to the IRS’s tax laws. Of course, that doesn’t mean you should assume that you can follow IRS guidelines when attempting to solve a tax dilemma or obtain state tax debt relief.
What Are State Tax Debt Settlement Options?
The easiest way to obtain state tax relief is to make a full payment for the amount you owe. If you’re in a position to do that, you can likely take care of your problem today.
However, not everyone has the funds available to pay what they owe in late state taxes. Let’s discuss some alternate options that are nearly universally available across all 50 states:
- Installment Payment Agreement allows you to make payments over a period spanning roughly six years.
- Offer in Compromise (OIC) allows you to pay less than the full amount of the tax liability owed.
- Innocent Spouse Relief waives what you owe if you can prove that errors or fraud were conducted on your behalf without your knowledge.
- Currently Non Collectible (CNC) Status freezes all collection efforts and penalties based on your inability to pay.
Keep in mind that the specific requirements and terms of each relief option may vary by state. You’ll be required to submit all paperwork and records requested to prove that you qualify for any of these options. While no relief option is guaranteed, almost all taxpayers will at least qualify for payment agreements that allow them to pay back debt over time.
How Does State Tax Debt Relief Work?
State tax debt relief is determined on a case by case basis. Generally, your state will look at your ability to realistically pay back what you owe. It’s possible that your state will allow you to negotiate down the total amount you owe. Additionally, your state may agree to temporarily freeze collection efforts if you can prove a financial hardship.
You must be prepared to cooperate with full financial disclosure when applying for Offer in Compromise or Currently Non Collectible Status, because your state will use stringent guidelines to see if your financial state qualifies you for these levels of assistance. In addition to looking at your ability to pay today, your state will also anticipate your ability to pay at a later date. This means that your case may be revisited in the future even if your payment obligation gets suspended now.
How Do I Settle My State Tax Debt?
Your two options for settling your tax debt are to pay today or enter into a relief arrangement with your state agency. It will be up to your state to decide if you will be accepted into a relief program. Keep in mind that state agencies often take months to approve relief applications. This is why it’s essential to act quickly.
Does State Tax Debt Ever Go Away?
The truth is that state tax debt generally sticks around longer than federal tax debt. There is a general 10-year statute of limitations for IRS tax collection, but every state sets its own statute of limitations for tax debt. The range goes from three years to 20 years! What’s more, states like Maryland have policies in place that allow state agencies to renew liens for 20 years beyond the expiration date of tax debt.
The simple answer is that states do not let tax offenders off the hook very easily.
How Can Tax Group Center Help?
Are you struggling with unpaid state income tax? The first step to solving your problem is to become familiar with what your state agency says about penalties, relief options, and statutes of limitation. The Tax Group Center can help you to get state tax debt worked out as quickly as possible. Our state tax relief services will help you access options that are available for reducing and paying off your debt without harsh penalties. We have a team of tax professionals, CPAs, and lawyers waiting to offer you the state tax relief help you need. Reach out today to get started!