How State Tax Payment Plans Can Save You Money and Stress

Graham Snelgrove

Expert Contributor
Last Updated: December 9, 2021

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When you can’t pay your state taxes in full, various payment options are available.
If you agree a payment plan, you must adhere to the terms.
Seek professional debt relief advice to find the best solution for you.

Even if you can’t afford to pay the state taxes you currently owe, you still have the responsibility to file your tax return on time. The penalties for not filing a tax return are much higher than they are for not paying your taxes.

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1 Short-Term Payment Extension

2 Installment Payment Plan

3 Offer in Compromise

Once you have filed your tax return and it has been accepted by the tax department, you should consider the state tax payment plans that are available if you don’t have the means to pay your full tax debt immediately.

Any of the plans available to you that ease the burden of paying your taxes need to be studied carefully. For the best results, seek professional advice to make sure you get the settlement plan that is most suitable for your needs.

Short-Term Payment Extension

If you know that you will have the means to pay your taxes in full within 120 days, you can apply for a short-term extension. When you have submitted your application, you should be notified immediately if it has been approved.

Applying for a short-term extension doesn’t incur a fee, but interest may be added to your tax debt. However, you can avoid the fees incurred by applying for an installment agreement.

How State Tax Payment Plans Can Save You Money and Stress

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Installment Payment Plan

If you can’t pay your tax debt in full when it is due, an agreement to pay off the debt in monthly installments could be the solution. You must fulfill certain requirements to be eligible for an installment payment agreement:

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Your tax debt must be $50,000 or less.
For the previous five years, you must have filed your tax returns on time and paid your tax liability on time.
You must agree to and be able to pay the whole amount of your debt within the agreed period of time.
During the agreement period, you must agree to comply with all current tax legislation.
You must supply the tax department with all information requested to enable them to assess your financial situation.
The tax department must determine that you will not be able to pay your tax debt in full by the due date without suffering undue hardship.

Even if you do not meet all of the criteria, the tax department will still assess your application and might agree to an installment payment plan.

Requesting an installment payment agreement will incur a fee, but that fee will be reduced if you set up direct debits for your monthly payments. If you later ask to restructure the agreement, you will be charged an additional fee. That fee will also apply if you breach the agreement by missing a payment but then ask for the plan to be reinstated. The fees will usually be added to your tax debt and included in the payment agreement. Defaulting on your agreement will incur penalties and could affect your credit score.

Offer in Compromise

If you are unable to pay your tax debt in full and it is unlikely that your financial position will ever change enough to enable you to settle your liability, you could make an offer in compromise. This would allow you to pay less than you actually owe to settle your tax debt.

The statute of limitations on tax debt is 10 years, and the tax department will always attempt to collect the full amount that you owe within that time. However, if they believe that they will not realistically be able to pursue you for the full debt, they might accept an offer in compromise.

The tax department will consider many factors when ascertaining whether or not you will be able to settle your full tax liability, including the following:

Your current income
Your earnings in the previous year
Your potential future income
Your expenses
The assets that you currently hold

When Will the Tax Department Accept an Offer in Compromise?

If your offer in compromise is based on one of three circumstances, it might be accepted by the tax department:

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Doubt as to collectibility. This applies when it is unlikely that the tax department will ever be able to collect your tax debt because your assets and future earning potential are less than the amount you owe.
Doubt as to liability. This comes into play when some doubt exists over whether the taxes in question are actually owed by you.
Effective tax administration: In this situation, liability or collectibility are not in question, but your ability to pay is affected by special circumstances.

When Will an Offer in Compromise Not Be Accepted?

Your offer in compromise will not be accepted if the tax department believes any of the following:

You are able to pay your tax liability in a lump sum.
They would be able to collect the full amount through an installment agreement.
You have not provided all of the financial information they have requested within the required time frame.

An offer in compromise could also be canceled if you fail to make a payment.

What Are the Payment Options for an Offer in Compromise?

When you agree to an offer in compromise with the tax department, there are generally three ways of paying, depending on your personal circumstances:

Lump sum payment. Your agreed offer in compromise must be settled in five or fewer installments.
Short-term periodic payment. You must settle your debt within 24 months.
Deferred periodic payment. You can take longer than 24 months to pay but it must be settled within the 10-year statute of limitations period.

If your application for an offer in compromise is accepted but your financial status later improves, the tax department can increase the amount of your monthly payments. If you fail to make the agreed-upon payments, the tax department can impose penalties, and your credit rating could be damaged.

When you are concerned about getting into debt with your state taxes, you can deal with the authorities yourself. However, tackling tax debt can be an intimidating and confusing experience. For professional help, consult Solvable. Our site will take your needs into account and match you with trusted debt relief professionals.

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Graham Snelgrove

Expert Contributor
Last Updated: December 9, 2021

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