CT State Tax Payment Plan Options
The Connecticut (CT) Department of Revenue Services (DRS) offers payment plans (aka Installment Agreement) that allow you to pay off your state taxes in monthly payments, but unfortunately, the DRS has strict criteria that prevent many taxpayers from qualifying and short terms that can make payment plans unaffordable.
Luckily, there are a few alternative routes that can help you qualify for an affordable payment plan on back taxes in CT. Here's what you need to know.
How Tax Payment Plans Work in CT
If you qualify, CT DRS payment plans allow you to pay off your tax bill in 12 monthly installments. As you make payments, interest of 1% per month will accrue on your balance.
Even if you make payment arrangements, the state can still take your federal income tax refund and/or place liens on your property. Once you have paid off the entire balance plus interest and penalties, the state will release the tax liens.
Requirements for Setting Up a Tax Payment Plan in CT
The DRS says taxpayers must meet the following criteria to set up a payment plan in CT:
- Not be in collection status with the DRS
- Not be in collection status with a collection agency working for the DRS
- Not be under warrant or bankruptcy
- Not be under criminal investigation with the DRS
- Filed all returns with the DRS
- Owe $10,000 or less
- Can pay off the tax bill in 12 months
This list excludes almost everyone, and it really only applies to people who have just submitted a CT tax return and are trying to set up a payment plan online. For example, if someone just filed their state return and they owe $6,000, they could probably use the CT DRS's online system to set up a payment plan.
However, most people don't attempt to set up payment plans until they are in collection status with the DRS. For example, if someone owes taxes on a return they filed a couple of years or even just a few months ago, their account is likely to already be in collection status, and based on the list above, they can't qualify for a payment plan.
Does this mean that you cannot make payments on tax liabilities in CT? Not necessarily, but it does mean you need to work with someone who understands the system.
How to Apply for a Payment Plan in CT
As indicated above, if you meet the criteria, you can apply for a payment plan online. Otherwise, you need to call the DRS and speak to a Revenue Agent at 860-297-4936.
You may be able to apply for a payment plan through the mail, but you will need to set up an online account with the DRS so that you can access the form to request a payment plan. The DRS does not have payment plan request forms available on its website with its other income tax forms.
How to Get a CT Payment Plan When You Don't Meet the Criteria
The DRS will often grant payment plans to people whose accounts are already in collection status, but again, you or your accountant will need to call the DRS and have a collection agent assigned to your account. You can't just do it yourself online without talking to anyone.
However, at this point, you still have to deal with the 12-month limitation. This works for some people, but most people cannot easily pay off their tax liabilities in 12 months. Typically, if you ask for more than 12 months, the DRS collection agents will tell you that the system can't set up payment plans that last longer than a year.
In some cases, you may be able to convince the DRS to set up smaller payments for 11 months followed by a balloon payment in the 12th month. For instance, someone who owes $4,000 might be able to get an agreement where they pay $100 per month for 11 months and then face a balloon payment of $2900 the 12th month. Note this simple example doesn't account for interest accruing on your balance.
With this setup, you contact the DRS before the balloon payment is due. Then, if you can convince them that you need more time, they will extend your payment plan for another 12 months.
Unfortunately, this is not a guaranteed process. The DRS is relatively vague about the processes it uses or the plans it's willing to accept, and often, the outcome can depend on the mood of the DRS agent. This process has worked successfully for many taxpayers in the past, but it tends to be more effective if you work with someone who has experience dealing with the DRS.
Setting Up CT DRS and IRS Payment Plans
Many people owe taxes to both the state and federal government, and they often prioritize their federal tax liabilities over their state tax bills. Intuitively, this makes sense because federal tax bills tend to be larger than state tax bills, but if you're trying to set up payment plans with both the CT DRS and the Internal Revenue Services, there are compelling reasons to work with the DRS first.
First, the 1% per month interest rate charged by the DRS means it’s typically more expensive to carry a balance with the CT DRS than the IRS, which, at present, charges 3% per year in interest. Even if failure-to-pay penalties are still accruing on your IRS balance, the total accruals will only amount to around 9% per year versus 12% per year with the CT DRS.
As explained above, the DRS officially only offers 12-month payment plans, and if you're making a big monthly payment to the IRS, you may struggle to pay off your CT tax bill in just a year. Luckily, you can leverage your CT tax bill payments to keep your IRS payments low, but to do that, you need to set up your CT payments first.
Here's why. When the IRS reviews requests for payment plans, it takes into account several different items in your budget, including payments for delinquent state and local taxes. If you don't currently have a state payment plan, the IRS will use a set formula to determine how much you're likely to pay that is based on the percentage that your state tax liability bears to your combined state and federal tax liability. This formula typically allocates a lower monthly amount to state tax payments than to federal payments.
However, if you are able to establish a payment plan with the DRS before the IRS makes an assessment, the IRS will generally allow you the full monthly payment to the DRS as an allowable expense, regardless of the formula outlined above. For example, if the IRS normally assumes that you would make a $25 monthly payment on your state tax bill, but you have already agreed to make a $400 per month payment to the DRS, the IRS will use the $400 in its calculations.
This will reduce the amount you have to pay to the IRS every month, and it will make it easier to set up a payment plan with the CT DRS. This strategy is so effective that if you have unfiled federal returns, you may even want to set up your state payment plan before filing them.
Get Help Applying for a Payment Plan in CT
The CT DRS has vague guidelines and strict policies, and the agency is often reluctant to set up arrangements with taxpayers. If you have unpaid taxes in CT, you should work with a tax professional such as Robert Lyon, who has years of experience dealing with the CT DRS on behalf of taxpayers. He can help you navigate the DRS and set up the best arrangement possible for your needs. If you cannot afford a monthly payment plan, you could look at other options such as a CT Offer in Compromise. Get help today before the DRS escalates collection activity on your account.
Disclaimer: The content on this website is for educational purposes only. It does not serve as legal or tax advice. For specific help regarding your tax situation, contact a licensed tax professional or tax attorney.