What to Do When You Owe State Taxes

If you owe taxes to your state, the best thing to do is pay them in full when you file your return. This isn't always possible, however. If you can't pay your state tax bill or you receive a notice that you owe back taxes to your state, contact your state representative immediately to make suitable payment arrangements. Never ignore a state tax bill, as tax attorney Fred Daily says that most states are quick to seize property or assets from delinquent taxpayers.


Pay Taxes Directly

If you pay your state tax bill when you file taxes, you don't incur any penalties or interest charges. States often allow you to pay taxes using your credit card if you don't have enough funds in the bank to cover your tax bill. If you do have the money, send a check with your tax return to settle your account.


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Get Installment Plan

If you can't pay your taxes in full, you may be able to get an installment plan from your state. Contact your state tax office. Certain states make payment arrangements over the telephone, while others require you to visit the office in person to set up an installment plan. You have to fill out paperwork reporting your income, assets and expenses and provide a recent pay stub as proof of income. The state tax office evaluates this information to determine whether you qualify for an installment plan. If you do, pay on time each month.


Coordinate Installment Plans

If you're paying both federal and state taxes in installments, inform both agencies that you're also paying the other. Determine how much you can afford per month in total and offer to pay a proportionate amount to each agency out of that money. For example, if you owe $5,000 to the Internal Revenue Service and $1,000 to your state, offer your state 20 percent of your total payment each month and 80 percent to the IRS. Since you owe the IRS five times as much as you owe the state, this is a fair arrangement and allows you to pay off both debts more quickly.


Offer of Compromise

If you can't afford to pay your entire tax bill, you may be able to settle your tax account by paying part of your bill. This is called an offer of compromise, and the IRS sometimes grants such offers to federal taxpayers who can't afford federal tax bills. Ask your state tax representative about the possibility of an offer of compromise if you don't think you can pay your entire tax bill even if you pay in installments.