Montana State Taxes: Resolution Options and Consequences
The Montana Department of Revenue administers and collects personal and business taxes in this state. This includes personal and corporate income tax, estate and trust tax, wage withholding, mineral royalty withholding, and alcoholic beverage tax. The MT DOR, however, does not collect sales tax because Montana is one of only five states without sales tax.
If you don't file or pay your taxes, you will incur interest and penalties on the balance. You can also face other collection actions. To protect yourself, you should reach out to a Montana tax pro or contact the DOR directly to make arrangements to pay your tax debt.
To help you out, this guide explains the tax debt relief options in Montana, and then, it looks at what can happen if you don't pay your state taxes.
Tax Debt Relief Options in Montana
Can't afford to pay your Montana back taxes in full? Then, you should contact a tax pro or reach out to the DOR to talk about resolution options. Here are the tax debt relief programs offered by the DOR in Montana.
Payment Plan on Montana Taxes
You may be able to set up a payment plan if you owe back taxes in Montana. The state accepts payment plans on individual income tax as well as business taxes such as withholding tax, lodging facility sales and use tax, corporate income tax, partnership tax, and tobacco tax. To request a payment plan, go online to the Montana TransAction Portal (TAP) or contact a Montana tax pro for help.
Offer in Compromise
The Montana DOR does not advertise an offer-in-compromise program on its website. An offer in compromise is when the state agrees to let you settle your taxes for less than you owe. However, if you can't afford to pay your federal taxes, you may qualify for an IRS offer in compromise. Then, you can focus on your Montana taxes separately. Contact a Montana tax pro to talk about your options.
Montana Innocent Spouse Relief
You can apply for innocent spouse relief if your state tax debt is due exclusively to your spouse. For instance, if your spouse underreported income or overclaimed deductions without your knowledge, you may qualify for this type of relief. To get innocent spouse relief in Montana, you need to apply for IRS Innocent Spouse Relief.
If you get accepted, send a copy of your notice from the IRS along with a written explanation of why you deserve relief on the state level. The Montana DOR uses the same approval critiera as the IRS.
Injured Spouse Relief in Montana
Injured spouse relief applies if the state seizes your tax refund to pay for your spouse's child support or other debts. To avoid having your refund taken for your spouse's debts, you can file as married filing separately. If the state has already taken your refund, you should reach out for help within 30 days. Then, the DOR can help you file the right return. In Montana, you may need to amend your return and file separately if you want to reclaim these funds.
The MT DOR does not promote a hardship program for taxpayers who can't afford to pay their state taxes. However, if the state is going to offset your tax refund for a debt, you can apply to keep the refund through the hardship program.
Montana will automatically waive your penalties if you pay all of the tax and interest due within 30 days of receiving a tax delinquency notice. You can also request a penalty waiver if you have reasonable cause for paying or filing late. Generally, reasonable cause refers to situations out of your control that caused you to pay late such as illnesses, deaths, natural disasters, etc. To request a penalty waiver, send a written request to the Montana Department of Revenue or file Form APL S101F (Request for Informal Review).
Appeals Process When You Disagree With Montana Taxes
If you disagree with a tax assessment, you can appeal by submitting a written protest within 45 days of receiving the notice. Even if you don't have all of the information you need, you still need to contact the MT DOR by this date. Then, if applicable, simply let the DOR know that you need more time.
In your appeal, note why you disagree with the assessment and provide supporting documentation as needed. If desired, you can request a meeting to talk about your case. The DOR should respond to you within 45 days.
If you disagree with the DOR's decision, you have 45 days to file a referral with the Office of Dispute Resolution. Then, the DOR will assign your appeal to an Administrative Law Judge. The judge will issue a final decision, and if you disagree, you can apply to the Montana Appeal Board. After that, you have another chance to appeal with the District Court.
Montana Voluntary Disclosure Program
If you haven't filed your tax returns, you may qualify for Montana's Voluntary Disclosure Program. Typically, you can only qualify for Voluntary Disclosure Programs if you come forward voluntarily and the state doesn't contact you first. You must file and pay the last five years of taxes plus interest to qualify. Then, the state will waive your penalties.
If you owe taxes in multiple states, you may qualify to use the Multistate Tax Commission's Multistate Voluntary Disclosure Program.
What Happens If You Don't Pay Taxes in Montana?
If you don't pay taxes in Montana, the DOR has the right to levy (seize) your wages, bank accounts, and property. The state can seize any assets except those that are exempt from seizure. If the DOR has contacted you about an asset seizure, reach out to a tax pro as soon as possible to get help.
The Montana DOR can also assess penalties on your account if you don't file or pay on time. Here is an overview of the penalties.
If you don't file on time, Montana charges a penalty of 5% of the outstanding tax due with a $50 minimum charge. This penalty assesses monthly and can get up to 25% of the balance.
If you purposely or knowingly file taxes late, the penalty is $1,000 for pass-through entities. It is 15% per month for all other entities, and it can get up to 75% of the balance due. This also applies if you don't file within 60 days of receiving a notice from the department.
Frivolous Return Penalty
The penalty for filing a frivolous tax return is $2,500. This includes filing a return without the information to calculate the tax due, filing a return with substantially incorrect tax due, or taking actions to impede tax collection.
Fraudulent Return Penalty
If you file a fraudulent return, you can incur a penalty of 75% of the tax due. If you file a fraudulent return with a refund, the penalty is 75% of the credit claimed. For instance, if you file a fraudulent return that understates your tax bill by $10,000, the penalty will be $7,500.
Understatement of Tax Penalty
For understating tax, the penalty is 20% of the tax that was understated. This applies to individuals who understated their tax liability by more than $3,000 or 10% of the amount of tax due. It applies to all other taxpayers if the understatement is at least $10,000 and at least 10% of the actual tax due.
Failure to pay personal income tax on time leads to a penalty of 0.5% of the balance. This is also assessed monthly, and it can get up to 12% of the tax due. The fee is 1.5% monthly, up to 15% of the tax due for late payments of withholding tax, telephone communications service fees, retail telecommunication, excise tax, lodging facilities sales and use tax, or rental vehicle tax.
Interest on Late Tax Payments
Additionally, Montana charges interest on your tax debt. The rate adjusts annually. As of 2023, the interest rate on individual income tax is 3% annually or 0.0137% daily. For all other taxes, the rate is 9.25% annually or 0.02534% daily.
Get Help With Montana Back Taxes
To get help with Montana back taxes, use TaxCure to find a local tax pro based in Montana. When you work with a local tax professional, you get access to someone who is experienced in dealing with the MT DOR. They can talk with you about your options and help you find the best relief for your situation.