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These are only a few examples of the diversity in state tax law and what you can expect in terms of options and consequences. Never assume what your state may or may not do if you owe state taxes. Contacting a representative at your Department Of Revenue will clear up any confusion on your obligation.
If you’re behind on your state income taxes, you’re not alone. Many Americans find themselves wondering what they owe or being surprised when faced with tax debt.
It’s unnerving to receive a sudden bill in the mail. Whether or not you’re faced with state income tax, you need to learn what’s expected of you. Ignoring the issue risks increasing your debt obligation, while educating yourself and taking direct action will help immensely.
State Income Tax Debt vs Federal Income Tax Debt
One of the most confusing elements of state income tax is how much it differs from federal income tax. Generally, state income tax law is less flexible than federal income tax law.
Firstly, many American states will pursue a tax debt longer than the IRS. The IRS has a collection statute expiration and will forgive a debt after ten years has passed. Only a few exceptions to this rule exist, such as filing for bankruptcy.
Secondly, American states have different approaches to financial hardship than the IRS. Some states may offer debt settlements for less than what you owe, while others don’t provide the option. To contrast, the IRS offers a debt payment solution known as an offer in compromise.
Thirdly, if you’re in a difficult position to pay back what you owe, the IRS will offer either temporary or indefinite pause on payments. Some states offer pauses on collections, such as Louisiana, while other states don’t. You may have to pay a down payment to qualify, however, while the IRS does not require one for their installment plans.
Staying up-to-date on your state’s laws is essential for avoiding state income tax debt. For example, if you live in Colorado, the state may consider a request for a payment plan. However, you will receive penalties and interests the longer you take to pay in full.
If you live in Idaho and can prove financial hardship through financial and interview statements, you can receive an offer in compromise. They also provide one-year or two-year payment plans, though not everyone will qualify.
Each state comes with its own debt process, payment options, and financial consequences. Are you concerned about owing state income tax? Next time you’re free, contact your state’s Department Of Revenue to learn about your state laws and find out your payment options.
Which States Don’t Require Individual Income Tax?
Are you considering moving to a new state or aren’t sure if you owe at all? Below is a list of states that don’t require individual income tax:
Washington
Nevada
Texas
Tennessee
Florida
Wyoming
South Dakota
New Hampshire
Alaska
The only exception Washington makes to individual income tax is taxing capital gains
What Happens If I Don’t Pay My State Income Tax?
Delaying your tax obligation exposes you to penalties and interest. State income tax is also unique because each state may have different payment plans – and consequences – for failing to pay what you owe.
For example, if you fail to pay your state income tax in Kansas, they may file a tax warrant if you apply for a payment plan. This tax warrant protects its ability to collect if you still fail to meet your tax debt obligation. However, they do have a Taxpayer Assistance Center and offer a program similar to an offer in compromise.
If you live in Maryland, you’ll be charged various interest rates based on the years you owe. If you want to seek out options for repayment, you can’t currently be in bankruptcy proceedings to qualify. If you’re able to prove a reasonable cause for non-payment, the state may waive these penalties and interest. They also provide payment plans and an offer in compromise program.
If you live in Indiana, you can take a payment plan and work out an agreement on the maximum time allowed. That said, they only allow three years for tax debt exceeding $5,000. They also provide a hardship payment program you may qualify for if you’ve experienced a severe illness or a natural disaster.
These are only a few examples of the diversity in state tax law and what you can expect in terms of options and consequences. Never assume what your state may or may not do if you owe state taxes. Contacting a representative at your Department Of Revenue will clear up any confusion on your obligation. 
3 Things To Do When You Have State Income Tax Debt
If you know you owe state income tax, don’t panic. There are a few actions you can take now to keep your situation from getting worse and put you on the path toward repayment.
Your first step is to gather up your financial records. Any physical letters you receive from the state should be put somewhere safe, such as a file drawer or a lockbox. These documents make it easier to keep track of your obligation and receive legal help quickly.
Your second step is to reach out to a local tax professional. Your state may have low-income taxpayer clinics that can help you resolve state tax problems. Some of these services may even be free, depending on your area.
Your third step is to take action as soon as possible. Waiting on your state income tax payments will add penalties and interests on top of your obligation. Some states may even garnish your wages or take your driver’s license.
