New York State Back Taxes Options
New York State has a tax resolution framework for taxpayers struggling with back taxes. The NY State Department of Taxation and Finance (DTF) has a reputation for being consistent and reliable. Some of the tax programs available help taxpayers pay off their balance over time. Other options are available to help financially strapped taxpayers settle for less than they owe. If you are struggling with New York State back taxes, the overview below will provide you with some direction on the resolution options. Then, the guide takes a look at what can happen if you don't pay your NY state taxes. Keep in mind that programs and laws change, so it is always a good idea to contact a licensed tax professional.
NY State Individual Tax Resolution Options
NY Installment Payment Agreement (IPA)
DTF offers different types of payment agreements for those who cannot pay their taxes in full. They will look at a taxpayer’s compliance history, current financial state, and adherence to department requirements to determine whether to accept an IPA. Remember, that you will be paying your taxes over a series of monthly payments. Interest and penalties still accrue. NY will allow up to 72 months for a taxpayer to pay off their tax balance generally with a direct debt installment agreement.
Read more here about the different IPAs available and how to apply.
12-Month Currently Not Collectible Status (Hardship)
If you do not qualify for an IPA, you can look to apply for hardship status. Generally, a hardship status is good for one year. You must complete a financial form and disclose financial information annually. The disabled or retired, greatly benefit from this option because they don’t expect their financial situation to change in the future. However, a tax lien, or a tax warrant, usually will be filed.
It is comparable to obtaining a CNC status from the IRS. Unlike the IRS, the DTF does not publicly discuss this option, and there are no formal procedures. However, it is available for taxpayers facing difficult situations. For example, unemployment, illness, family issues, fire or floods, and severe decreases in income.
Offer In Compromise (OIC)
It is very similar to an IRS Offer in Compromise. NYS is a little more selective when it comes to who qualifies. It is available to individuals and businesses that are insolvent or were discharged in a bankruptcy proceeding. It is also possible for individuals who are solvent, but payment would create “undue economic hardship.” With a NY OIC, taxpayers make an offer that represents the equity in their assets and future disposable income.
Read more here about the NYS offer in compromise program, who qualifies, and how to apply.
Innocent Spouse Relief (ISR)
NYS does offer Innocent Spouse Relief as an option for spouses or former spouses who filed a joint tax return. There are three types of innocent spouse relief options available:
- Innocent Spouse Relief
- Separation of Liability
- Equitable Relief
Generally, ISR is best for spouses or former spouses who did not know and had no reason to know a joint tax return they signed had an omission or error. Furthermore, the spouse believes that DTF should not hold him or she responsible for the understatement of tax.
NY Business Tax Options
In NY state, withholding tax and sales taxes are “trust” fund taxes. Businesses collect the former taxes on behalf of consumers or employees and submit them to the state. Therefore, unpaid trust fund taxes are a serious matter to New York. Generally, these tax cases are handled on a case-by-case basis. Here are some of the paths frequented by businesses that owe taxes.
Installment Payment Agreement – IPA
In most cases, NY State requires a down payment of around 20% before they agree to an IPA. However, DTF may still grant an IPAs without a down payment.
Offer In Compromise
As discussed above, businesses that are insolvent or bankrupt may apply for the OIC program. NYS usually will not approve an offer for less than the amount of trust fund taxes owed. However, you can make an offer for the principal excluding penalties and interest. However, income taxes are different. Therefore, if a business is still active, an IPA with a down payment is usually the best option. However, if NYS assessed a “responsible person” personally for business taxes owed, then that individual may apply for the OIC program if he or she qualifies.
Voluntary Disclosure Program
The New York Department of Taxation and Finance offers a Voluntary Disclosure and Compliance Program. This is similar to a permanent tax amnesty program for people who are behind on their taxes. If you owe NY state back taxes and have unfiled returns, the voluntary disclosure program allows you to get caught up without facing penalties or criminal charges.
To apply, you have to contact the department and outline which taxes you owe. Then, you must pay the taxes and agree to pay all future taxes. You can apply for voluntary disclosure online or contact a tax professional to help you. If you have undisclosed investments in a Passive Foreign Investment Company, you can start the voluntary disclosure application, but don't submit any tax returns right away. Instead, wait for the NY DTF to contact you.
A New York State audit can be a stressful process. The NY DTF may select you for an audit if you have unfiled returns, unreported income, excessive credits or exclusions, or fraudulent returns. New York State also does a lot of residency audits. The state also compares information from the IRS, and if there are discrepancies, it may select you for an audit.
During an audit, you have to prove the information on your return. You may also have to argue with the audit examiner if they claim that your return should be different. If you're not careful, audits can lead to unexpected tax liabilities. A tax professional can be invaluable if you're being audited.
NY State Statute of Limitations for Tax Collection
New York or the DTF has 20 years to collect tax liabilities. It is 20 years from the date the DTF could file a warrant. While the IRS has ten years to legally collect the taxes, NY State has 20 years.
The first date a warrant can be filed is different depending on the situation:
- If there is no right to a hearing concerning the demand for payment, the day would be the day after the payment demand letter specifies.
- If there is a right to a hearing, it would be the first day after the deadline to request a hearing.
Remember, NY State and the taxpayer can agree to extend the time to collect on a tax warrant.
New York State Debt Collection Actions
As indicated above, New York State has up to 20 years to collect a tax debt. You won't be able to "hide" from the state until this time frame expires. It's simply too long. The best option is to contact a tax pro and set up one of the tax resolution plans to deal with your NY back taxes. But what if you don't? What happens if you don't pay your NY State taxes? Here is an overview of how the Department of Taxation and Finance can involuntarily collect your back taxes.
New York State Tax Warrant
A New York State tax warrant is a lien against your real or personal property. It gives the state the right to seize your property and garnish your wages. Even if the state doesn't move forward with the seizure, the tax warrant can affect your ability to buy and sell property and take out loans.
If you sell property while there is a tax warrant, the state has the right to the proceeds of the sale, up to the amount of your tax bill plus penalties, interest, and collection costs. Once a warrant is in place, it can be difficult or impossible to remove unless you pay your state tax bill in full. The best option is to make arrangements on your state taxes before the New York Department of Taxation and Finance issues a tax warrant.
Tax Levies in New York
A levy is typically the next step after a tax warrant. A levy is when the New York DTF seizes your bank accounts. The state will contact your bank and give them a 90-day warning. If you don't pay your tax liability, the bank will send the funds in your account to the state at the end of the 90 days.
In New York, the state generally uses the term "tax levy" to refer to bank account levies. When the state levies physical assets, it refers to the process as a seizure. When it levies wages, it uses the phrase income execution.
An income execution is when the department requires you to pay a portion of your wages toward your state tax bill. Initially, the state will ask you to voluntarily pay 10% of your gross wages or 25% of your disposable wages every time you get paid. If you don't comply, the department will send an income execution order to your employer. Then, your employer will withhold this amount from your paycheck and send it to the state every pay period. In other states, this is called a wage garnishment.
After New York State files a tax warrant, it may seize your assets and sell them at auction. The state can take personal and business assets. When taking business assets, the department can change the locks at your place of business, deny you access, and take all of your business assets and merchandise.
If you owe more than $10,000 in NY state back taxes, the Department of Taxation and Finance can suspend your driver's license. The department will send you a Notice of Proposed Driver's License Suspension. You can avoid the suspension by paying the tax in full or setting up an installment plan. If you have a commercial driver's license, you may be exempt from this collection action. You can also get an exemption if your wages are being garnished for taxes, you pay court-ordered child support, you are on public assistance, or you receive Supplemental Security Income (SSI).
Private Debt Collection for New York State Back Taxes
If you have unpaid taxes, the state can send your file to a private debt collection company. The Department of Taxation and Finance will send you letter DTF-975.1) to alert you that your account has been referred for private collections.
How do I know if this collection agency works for the State of New York? You can ask them for your collection case ID number to confirm that they are legitimate. Or you can contact the DTF to check. As of 2022, the New York State Tax Department uses Coast Professional, Inc based in Wst Monroe, Lousiana to collect back taxes.
Tax Refund Offsets
Why didn't I receive my NY tax refund? If you have back taxes, the state can keep your tax refund. NY DTF also keeps state tax refunds to cover IRS debts and debts from several other agencies. This is called the tax refund offset program.
Generally, you cannot get offsets back. However, if you filed a joint return and the refund was seized because of a bill due exclusively to your spouse, you can apply for nonobligated spouse relief. File Form IT-280 (Nonobligated Spouse Allocation) to apply.
Get Help With Back Taxes and Other Tax Problems in New York
If you are struggling with New York State back taxes, it is generally a good idea to connect with a licensed tax professional or a tax firm with experience resolving NY tax problems found in the link or start your search below. You can also find the top-rated tax professionals by license type below.
- Top-Rated New York Tax Attorneys
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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.