Every year, most taxpayers face a double-whammy on Tax Day. Federal income taxes must be paid to the Internal Revenue Service, and all but nine states have their own income taxes which must also be paid. Once the state tax agency receives your W-2s, 1099s or other applicable tax documents, it is aware that you owe taxes. If you don't pay your taxes upfront, state tax agencies can charge penalties, personally contact you or even place a lien on your property.
Penalties & Interest
When state taxes are not paid to the state taxation board by April 15, penalties and interest are immediately added to the overall cost of taxes. In the state of Iowa, an individual who has filed his taxes but has not paid the full amount due is assessed a tax penalty of 5 percent of the outstanding taxes still owed. The same applies to state sales taxes; in Texas, a retailer who owes sales taxes owes an additional 5 percent after one day late, 10 percent after 30 days late and daily interest is assessed after 60 days late.
Taxpayers will be contacted via mail by state tax collection agencies under a few different circumstances: if the taxpayer hasn't paid the full amount by Tax Day, if the taxpayer hasn't paid the correct amount or if there are discrepancies between the individual's state and federal tax returns. If the taxpayer does not respond to the mailed notice, a state tax representative will contact in an attempt to set up a payment plan.
If a taxpayer doesn't respond to communication from state tax representatives, the state often will take legal action to recoup the debt. State tax agencies can refer the debt to a collection agency or take legal action to have assets seized or wages garnished. States also use tax liens in order to collect back taxes. By filing a tax lien notice with the appropriate agency, the state tax board can attach the back taxes to the taxpayer's real property. If the taxpayer wants to sell that property at any point, the tax lien must be legally satisfied with the state first.
Statute of Limitations
An individual who has not paid their state taxes has to wait 10 years for the statute of limitations on the unpaid tax debt to run out. The statute of limitations is intentionally left this long to give state tax agencies the longest time possible to find tax evaders and collect the debt. In contrast, state tax agencies have a maximum of six years to audit a tax return which may be incorrect.
- Iowa Department of Revenue: Iowa Income Tax FAQs
- Window on State Government: Texas Sales Tax - Frequently Asked Questions
- Comptroller of Maryland: Spotlight on Maryland Taxes - What Happens if I Don't Pay?
- TaxDebtAid.com: IRS or State Tax Lien
- My Two Dollars: What Would Happen If I Don't Pay My Taxes
- IRS.gov: States Without a State Income Tax