Review of the Arkansas State Tax Payment Plan

The Arkansas Department of Finance and Administration (DFA) may be willing to let you pay off your back taxes in monthly payments. To qualify, you typically need to show the DFA that you cannot pay your tax liability in full but you can afford to make monthly payments. Here is an overview of the process.

How to Apply for a Tax Payment Plan in Arkansas

In Arkansas, there is no set process to apply for a payment plan on back taxes, and the state publishes very limited information about how to qualify. To learn more about payment plans, taxpayers can call the state directly at 501-682-5000 or 1-800-292-9829.

Because there is such limited guidance on how to work through this process, you may want to work with a tax professional.

What to Expect When You Apply for a Payment Plan

The Arkansas DFA judges each payment plan request on a case-by-case basis. Essentially, the agency wants proof that you cannot afford to pay the tax bill in full and that you are making the highest monthly payment you can afford to make. If you call and request a payment plan, the state may request a variety of documents to assess your ability to make payments.

How Arkansas Assesses Your Financial Situation

To determine whether or not to offer you a payment plan, the state will want to know about your assets, debts, income, and expenses. Depending on how much you owe and your unique financial situation, the state may request copies of old tax returns, proof of income, a list of your assets, or other documents.

In some cases, the state may use the following forms from the Internal Revenue Service (IRS) to collect this information:

• Form 433A (Collection Information Statement for Wage-Earners and Self-Employed Individuals)
• Form 433F (Collection Information Statement)
• Form 433B (Collection Information Statement for Businesses)

Individual taxpayers should prepare to submit Form 433A or 433F, while businesses should be willing to file Form 433B. The Arkansas DFA may require both of these forms if you own a sole proprietorship, a partnership, or a closely held corporation.

Setting Up Automatic Payments for Arkansas Back Taxes

If you get approved for a payment plan, a representative from the Arkansas DFA will walk you through the process of how to set up payments. Generally, the state prefers that you set up automatic payments, and in some cases, you may be required to set up electronic payments if you want to avoid having a lien issued on your account.

You can set up automatic payments for your tax liability through the Arkansas Taxpayer Access Point (ATAP). This web-based service is available for most taxes administered by the Revenue Division, and in addition to allowing you to make payments, it also allows you to file and amend certain returns, view account balances, and look at recent activity.

Note that although you can make payments on individual income tax bills, you cannot use the ATAP to file individual income tax returns.

Alternatively, you can make ACH credit payments on your back taxes. You must contact your bank to set up these payments, and if they are formatted incorrectly, the payments will be returned and your account may be subject to a failure-to-ETF penalty.

Certificates of Indebtedness and Payment Plans

In Arkansas, the DFA may issue a certificate of indebtedness or a lien when you owe back taxes. A lien is a legal claim to your property, and if you sell property that has a lien, you are legally required to give all or some of the proceeds to the lienholder.

Even if you set up a payment plan, the state can still issue a lien on your real or personal property, and in most cases, the lien will remain in place until you pay your state tax liability in full. However, the state generally won't issue a lien if you set up automatic payments to pay off your tax bill in 12 months or less.

Interest on Payment Plans

Arkansas charges 10% annual interest on back taxes, and the interest will continue to accrue on your account if you set up a payment plan. For example, if you owe $2,000 in back taxes, your annual interest will be $200.

Because the interest rate is so high, you may want to take out a bank loan to pay off your Arkansas back taxes. Any loan with an interest rate lower than 10% will save you money in the long run.

Penalties and Payment Plans

Setting up a payment plan stops penalties from accruing on your account. Monthly failure-to-pay penalties are 1% of the account's balance up to 35%, while monthly failure-to-file penalties are 5% of the account's balance up to 35%. Note that the total combined penalties cannot exceed 35% of the account's balance.

Penalties can be very expensive. For instance, if you owe $10,000, your total penalties can get up to $3,500. The sooner you set up a payment plan, the fewer penalties you will pay.

Payment Plans After an Offer-in-Compromise Rejection

The state of Arkansas has an offer in compromise program that allows insolvent taxpayers to pay off their tax bills for less than they owe. To apply for this program, you must fill out a lengthy application, provide extensive supporting documentation, and submit the federal 433 forms listed above.

Arkansas will not accept your offer in compromise application if the state believes you can pay more than you are offering, but if the state rejects your offer in compromise, it will usually offer you a payment plan.

You have the option to accept the plan and start making payments or to request a different arrangement. At this point, the state has a very detailed overview of your financial situation, and it may be relatively rigid about the monthly payment amount it is willing to accept.

Defaulting on a Payment Plan

Arkansas is very serious about its payment plans. If you miss a payment or default on any other terms, the state will declare your payment plan in default, and it will pursue other collection activities. For instance, most payment plans require you to stay current on filing requirements so if you forget to submit a state return, you may lose your payment plan.

Get Help Setting Up a Payment Plan on Arkansas Back Taxes

Dealing with the Arkansas DFA can be complicated, especially if you're juggling multiple state taxes or federal tax liabilities as well. To get help applying for a payment plan, contact a tax pro who is experienced with the Arkansas DFA. They can help you set up a payment plan or identify the best tax resolution option for your situation. For example those that cannot afford a payment agreement may want to consider an Offer in Compromise.