Back Taxes Owed to the State
Back taxes are the taxes an individual or business owes to the state or Internal Revenue Service (IRS) from the previous tax year. Two common reasons for owing back taxes are failure to pay your tax liability due and failure to file your tax return. Although IRS and state tax debt are equally debilitating, state tax authorities are often more aggressive in collection action.
The federal tax rate and state income tax rates can be considerably different depending on your state of residence. Additionally, certain states are exempt from state income tax. These states include Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. States that do not charge income tax will alternatively charge tax on capital gains, sales tax and other sources of income.
An individual's state taxing authority will offer either a progressive tax rate like the IRS or a flat tax rate. A progressive tax rate charges individual tiered tax rates that fluctuate depending on income level. On the other hand, a flat tax rate assigns all taxpayers the same tax rate.
Taxpayers who live in a state that charges income tax must be diligent in filing their tax returns, paying the balance due and ensuring state tax compliance. Failure to file or pay for the prior year or previous years can lead to many negative consequences!
Consequences of Owing Back Taxes to The State
Generally, most states will ultimately file a tax lien against taxpayers who have failed to file their tax return or failed pay the tax debt owed. However, each state has its own tax codes and laws for collection procedures. In order to determine the state-specific consequences for unpaid back taxes, contact your local tax authorities.
Penalties and Interest
Each state has its own tax regulations. Certain state taxing authorities will charge penalties for failure to file and failure to pay back taxes while certain states will charge interest on unpaid tax debt along with civil tax penalties. Generally, the failure to file penalty is higher than the failure to pay penalty. Some states will send debt to collection agencies and add the collection agency's fees to the taxpayer's total balance due. Therefore, the amount of penalties and interest will vary on the type of taxes owed and how long it took to pay the taxes.
State tax liens are very similar to federal tax liens. Individuals and business owners who owe back taxes to the state will often be hit with this penalty by their local state government. State tax liens may be placed on personal property (vehicles, mobile homes, business assets) or real property (houses, buildings, vacant land). Liens can be extremely detrimental to taxpayers for several reasons including, but not limited to:
- - Impacting credit score
- - Making it difficult to obtain or maintain a job
- - Making it difficult to obtain a personal or business loan
- - Making it difficult to purchase or sell property.
Another extreme consequence for owing back taxes to the state is possible jail time. Although jail time is a rare consequence, some state taxing authorities will take that action if they can prove an individual has willfully defrauded or evaded paying taxes. Tax evasion and fraud are serious crimes that can lead to being charged with a felony.
Some states will even revoke or suspend your occupational, professional, driving, hunting, or fishing licenses. Once revoked, the delinquent taxpayer's license will continue to be suspended until the taxpayer establishes compliance with the IRS.
Other consequences of back taxes owed to state include, but are not limited to: seizure of assets, wage garnishment, and possibly car repossession! It is in your best interest to file your tax return and pay any taxes owed to the state in order to avoid these consequences.
How Lifeback Tax Helps with Back Taxes Owed to the State
At Lifeback Tax, we serve all 50 U.S. states and our team has extensive experience in settling both state and federal tax debts! We are qualified to represent taxpayers for cases involving income tax, sales tax and withholding tax. Although it is possible to resolve your state back taxes independently, your chances of achieving an optimal settlement will improve once you retain the services of a qualified tax professional. We will initiate contact with your local state taxing authorities so you won't have to.
The Lifeback Tax team understands that every taxpayer's circumstances are unique. We take the time to analyze your financial background and determine a structured resolution that you can afford! Our team of tax attorneys, Enrolled Agents (EAs), Certified Public Accountants (CPAs) and support staff will work by your side to ensure your case is resolved in a timely manner. We have successfully achieved countless settlements for our clients who owe back taxes to the state.
Owing State Back Taxes FAQs
It depends on where you live. Contact your state’s Department of Revenue and an agent can assist you. Sometimes this information will appear on your credit report.
You can contact your state’s Department of Revenue and review their policies. Each state will have different requirements. It is also recommended you seek advice from a local tax specialist or counsel.
No. Stimulus payments are protected from garnishment by the federal and state authorities.
It means that the proper tax amount was not withheld from your paycheck and paid to your state government.
The statute of limitations for collection of state tax debt will depend on the state in which you live.
Possibly. It depends on the factual circumstances of the case and if the state determines there is evidence of criminal activity.
It depends. Generally, the US forbids jailing debtors. However, jailing debtors continues to occur in several states including:
• Washington, and others
It is advised you seek the advice of a local tax specialist or attorney.