New Jersey State Tax Payment Plan Options
The State of New Jersey offers individual taxpayer's options for those who cannot pay tax liabilities in full. One option for taxpayers is the ability to pay off their balance over a series of monthly payments. It is known as a payment plan, but it is also called an installment agreement. With a payment plan, you generally will end up paying more in the long run because of interest and penalties.
Applying for a New Jersey Tax Payment Plan
The process of applying for a tax payment plan with the state of New Jersey requires careful consideration and preparation. By understanding the available options and necessary steps, you can ensure the process runs smooth.
Taxpayers have two choices: (1) pay the liability in 12 months or less, or (2) allow a Certificate of Debt/Judgment to be filed and pay the liability off in 60 months or less. If 60 months isn’t feasible, the only other option to get on an informal payment plan for a longer period and make the payments monthly. You may find online that the state offers up to 72 month plans, but this is outdated guidance.
To avoid issues, "taxpayers need to ensure all returns are filed. NJ doesn’t have a great online system like the IRS, so it’s difficult to get this information online. Instead, taxpayers should confirm (and reconfirm) that no returns are missing", according to NJ Tax Attorney, Brad Paladini.
Since NJ contracts with a third party-debt collector, Pioneer Credit Recovery, there is sometimes confusion between the state and Pioneer. For instance, the state may have already judged older balances. There could also be recent balances that have not gone through the judgment cycle. If that’s the case, you could hear from two different entities trying to collect two different debts. You want to make sure whatever payment arrangements you make include all the liabilities and not just what Pioneer is trying to collect.
Duration and Flexibility of NJ Tax Payment Plans
Standard and Extended Payment Plans
The State of New Jersey will accept tax payment plans that range from 3 to 60 months. Generally, NJ requires that the balance be paid in 12 months or less to avoid a judgment. "A 'judgment' in NJ tax parlance is the equivalent of a lien. It’s public record, filed with the NJ court system. If you’re unable to pay the balance in 12 months or less, a judgment will be filed. Usually the state will send you a certified letter "Notice of Demand for Payment" in the mail as well before proceeding with a judgment. At that point, you’d have additional time to pay the balance. Also, the payment amount must cover penalties, interest, and fees, within 36 monthly payments", tax attorney Brad Paladini states.
Extended Plans Under the Financial Hardship Scenario
If the taxpayer cannot afford to pay off the tax amount in 12 monthly payments, and otherwise does not qualify for any other form of relief, the Division may accept a lesser monthly payment figure if the taxpayer can establish financial hardship. Taxpayers illustrate a financial hardship by providing financial information which shows they are unable to pay off the taxes owed in the standard 12-month payment terms. The Division states they will consider granting payment plans for up to 60-month payment terms under the financial hardship scenario. In that case, NJ will file a judgment.
Informal Payment Arrangement
In cases where you need more than 60 months, the state is not very flexible. If a taxpayer needs a payment plan longer than 60 months, it’s going to be an informal arrangement. The downside of an informal payment plan is that NJ could still levy or garnish wages while a taxpayer is making payments. This happens if a new caseworker doesn’t check the history and see the monthly payments coming in or if they want more monthly money but don’t try to negotiate with the taxpayer first. NJ will ypically ask for taxpayer to complete Closing Agreement, Form 906 to review financials. It’s similar to an IRS Form 433a. In many ceses, they don’t typically request much supporting documentation.
Differences Between Individuals and Businesses
The terms are the same for both individuals and businesses. Businesses who owe sales tax need to be extra careful because NJ can prevent you from renewing licenses, like liquor licenses, and can even show up one day and close your doors permanently.
Interest, Penalties and Strategies to Minimize
Penalties and interest operate similar to the IRS. There are failure to pay penalties and interest. In addition, NJ will charge a 10% recovery fee as well. NJ does offer a penalty abatement process if the taxpayer can establish reasonable cause.
Overview of Requirements
Before the taxpayer may enter into an Installment Agreement, the taxpayer must file all necessary tax returns. Taxpayers must have taxes owed of $500 or more, and the monthly payment amount must be at least $25. Furthermore, taxpayers must include all unpaid balances in the plan. Taxpayers will still be subject to all set-off programs (set-off programs allow the state to apply your refunds to the taxes owed) until the unpaid balance is paid in full. Also, the Division will continue to add interest and collection fees until the taxpayer satisfies the outstanding balance in full, as discussed above. Furthermore, the state can add a 11% Referral Recovery Fee to each outstanding item if a 3rd party collection agency is involved.
Certificate of Debt (COD)
Usually, NJ’s Division of Taxation will automatically file a Certificate of Debt (“COD”) with the New Jersey Superior Court’s Clerk if the taxes owed is higher than $5,000 and the taxpayer seeks a payment plan greater than 12 months. A COD is the New Jersey equivalent of a tax lien. If the Division issues a COD, the state will also begin to assess a Cost of Collection Fee. The State of NJ adds the collection fee to the amount of taxes owed.
If a taxpayer wants to avoid the COD, they need to repay the balance within a year. Once it’s filed, there’s unfortunately nothing a taxpayer can do. Therefore, it is in the taxpayer's best interests to consult with a tax professional to explore all options to avoid or manage a COD.
Guidelines to Setup a Plan
Taxpayers, or their representatives, can set up an Installment Agreement with the State of New Jersey by contacting their assigned caseworker or by preparing and filing a Payment Plan Request Form. Taxpayers may also want to consider penalty abatement when appropriate. Taxpayers, or their representatives, should be mindful to attempt to include a hold or stay. The hold, or stay will pertain to enforced collection as part of the written payment agreement to protect the taxpayer from later being subject to enforced collection.
Working With Experienced NJ Tax Professionals
It is always a great idea to contact a licensed tax professional with experience in resolving NJ state tax problems. NJ is extremely difficult to navigate without professional help. It’s the Wild West of tax controversy. You’ll get wildly different information depending on who you ask. Taxpayers should really utilize someone who deals with NJ regularly in order to have the biggest impact. You can find a list of qualified tax professionals that solve NJ state tax problems here or start your search below. Otherwise you contact the NJ Payment Plan Unit here: [email protected]
Disclaimer: This article is not legal or tax advice. This article should not be used as a substitute for the advice of a competent attorney or tax professional admitted or authorized to practice in your jurisdiction.