Whether it's your newly combined marital income or you just got lucky on your honeymoon in Vegas, somehow, when you finished your taxes, you discovered you owed the state money. The only thing worse than owing on your state taxes, is owing an amount you can't afford to pay. The good news is, there is no debtor's prison in the United States.The bad news is, they'll get their money, so take steps to minimize the damage.
What Can Happen
You are supposed to pay the money owed for income taxes at the time you file your taxes. If you can't afford to pay them you have a problem. Most states charge you a late payment penalty and all of them charge interest on the debt. There are several ways you can handle the situation you get the best chance for a deal if you initiate it. Waiting for a taxing body to contact you about its money is never the way to go.
You don't have to pay your state taxes in a lump sum, taxing authorities will work with a taxpayer who is willing to pay and is just having financial trouble. It is always best to pay as much as you can at the time you file, even if it's only $5. It shows you are willing to pay and you acknowledge the debt. Your state will work out a payment plan with you if you contact them. Frequently these can be on reasonable terms depending on how you choose to pay.
Methods of Payment
You can always mail in a check and most states offer electronic payments through a secure website. They accept credit cards and may recommend you use one to avoid the interest and penalties, but if your credit card has an exceptionally high interest rate, it may be cheaper to pay the state. Another option offered by some states is automatic debits from your bank account. If your state charges a fee for a payment arrangement, the fee may be lower if you let them debit your bank account. You can also voluntarily have them take the payments from your paycheck.
Ignoring the Debt
Ignoring the debt is the worst thing you can do. Most states allow you to apply for an extension to pay to avoid the adverse consequences of doing nothing. If you ignore the debt for your state taxes, the state could garnish your wages for the debt. If it does, you will have no input on the amount it takes If you are on unemployment, it can attach to those wages as well. If can also put a lien on your federal tax refund through the U.S. Treasury Department's Offset program. If requested, the federal government will withhold your federal refund check and turn it over to your state. It will continue to do this until the debt is paid.
- CGA: Late Payment of State Income and Property Taxes
- CA.gov: If I Pay My Taxes Late, What Interest and Penalties Will I Be Charged?
- New York State Department of Collection and Finance: Request an Installment Payment Agreement
- New York Stae Department of Revenue and Finance: Pay a Bill (Assessment)
- Financial Management Service: DMS Treasury Offset Program
- Creatas/Creatas/Getty Images