North Carolina Tax Resolution Options for Back Taxes

Do you owe back taxes to North Carolina?  Perhaps you lost your job or were in the hospital.  Maybe you just had a hard year and didn’t have enough money to pay your state income taxes.  Perhaps, an unexpected audit increased your state tax liability. Whatever the reason was, there are options, but if you don't pay or make arrangements on your tax bill, the DOR can involuntarily collect the money through tax liens, wage garnishments, and asset seizure. 

However, if you contact the agency before the situation escalates, you may qualify to set up a payment plan, apply for a settlement, or make other agreements with the IRS. The following sections explain what you need to know if you owe taxes in NC.

Table of Contents

• NC Department of Revenue Contact Info
• North Carolina Individual Income Tax Options
  • Installment Agreement
  • Offer in Compromise
  • Innocent Spouse Relief
  • Bankruptcy
• Unauthorized Substance Tax
• Penalties for Not Filing or Paying Income Tax in NC
• Enforced Collections for Unpaid Taxes

North Carolina Department of Revenue Contact Information

The Department of Revenue (DOR), a cabinet-level executive agency, is responsible for administering tax laws and collecting NC taxes. The governor appoints the Secretary of Revenue. If you have unpaid state taxes, you will need to work with the DOR to pay them or request relief options.

• Individual Tax Assistance: 1-877-252-3052
• Business Tax Assistance: 1-877-252-3052
• General Inquiries: 1-877-252-3052
• Collections Assistance: 1-877-252-3252
• Tax Refund Assistance: 1-877-252-4052
• Website: https://www.ncdor.gov/

How do I find out how much I owe the NC DOR?

To find out how much you owe, contact the Department directly at 1-877-252-3052. You can also set up an online account with the DOR to check your balance. Alternatively, a North Carolina tax pro can help you find out how much you owe and review your payment options with you.

How do I check my NCDOR payment history online?

Both businesses and individuals can check their NC DOR payment history through the DOR's e-services page. You can generally make a payment without setting up an online profile, but you will need to create a profile to check payment history. 

North Carolina Individual Income Tax Options

The State of North Carolina offers a variety of options to taxpayers who owe the state income back taxes.  These tax resolution options are for taxpayers so they can reach a resolution with the state regarding unpaid tax liabilities. This list is not all-inclusive but can give taxpayers an idea of some tax options available.

NC Installment Payment Agreement - Make Monthly Payments on Your State Tax Debt

North Carolina offers an Installment Payment Agreement. Many may also refer to it as a tax payment plan or installment agreement. With this option, if the taxpayer cannot pay the balance in full, they can pay it over time. The type of tax and the amount owed usually determine the duration of the Installment Payment Agreement. Taxpayers can find out more about NC’s installment payment agreement here.

Can I combine NC and IRS tax debts into one payment plan?

Unfortunately, you cannot combine the payment plan for your federal and state taxes. If you owe taxes to both agencies, you must set up one payment plan with the NC DOR. Then, you must set up a separate payment plan with the IRS.

Before setting up either payment plan, consider talking with a tax pro. In some cases, it's more advantageous to set up one plan before the other. 

What if I can't pay my NC state taxes in full?

If you cannot pay in full, you may want to apply for a payment plan so that you can pay the tax in monthly installments over time. If you cannot afford to make monthly payments, you should look into an offer in compromise. An NC tax pro can talk with you about your situation and help you identify the best payment option for your situation.

NC State Offer In Compromise - Settle Tax Debt for Less Than Owed

North Carolina’s DOR has an Offer In Compromise (OIC) program for qualifying and financially distressed taxpayers. With this tax resolution, a taxpayer can pay a lump sum to settle their tax liabilities in full. The OIC tax program may also be an excellent alternative for taxpayers who cannot comply with an installment payment agreement. Taxpayers can read more about this tax resolution option here.

What is the NC tax debt relief program?

NC's offer in compromise program is sometimes called a tax debt relief program. If you qualify, you will get relief from your tax bill and collection actions, and you will only need to pay a portion of the bill to settle.

NC Innocent Spouse Relief - Get Relief on a Tax Debt Due to Your Spouse

In North Carolina, spouses are jointly and severally liable for the taxes that are due (e.g., married filing jointly).  However, a spouse will be allowed relief from a joint state income tax liability that is attributable to a substantial understatement by the other spouse if the spouse qualifies for innocent spouse relief of tax liability for federal tax due to the same “substantial understatement” by the other spouse under Internal Revenue Code Section 6015.

It is the only type of innocent spouse relief offered by North Carolina  G.S. § 105-153.8(e).

There is no time limit specified by the North Carolina statute to file. In comparison, to qualify for innocent spouse relief under Internal Revenue Code Section 6015, taxpayers must file Form 8857 no later than two years after the first IRS attempt to collect the tax from the taxpayer that occurs after July 22, 1998.

Bankruptcy

A taxpayer may also consider bankruptcy to discharge NC tax liabilities. However, some tax liabilities are non-dischargeable. For example, trust fund taxes (sales and withholding taxes), income taxes (including extensions) due within three years of the bankruptcy petition date, or tax liabilities due to unfiled or fraudulent tax returns. If a taxpayer considers this option, they should reach out to an experienced bankruptcy attorney.

Unauthorized Substance Tax in North Carolina

The NC DOR levies a unique tax called the unatuhorized substance tax. Anyone who possess an unauthorized substance such as an illegal drug must pay this tax within 48 hours of obtaining the substance. You can buy tax stamps at a DOR service center or by mailing in Form BD-1 or BD-1L to the DOR. Once you have the stamps, you must affix them to the substance.

Buying stamps fulfills your civil duty of paying the tax, but if you are in possession of a legal substance, you are still breaking NC criminal law. You can purchase the stamps anonymously, but you must provide a mailing address. The DOR does not release your name to law enforcement when you pay this tax. 

The state will assess this tax against you if you are caught with illegal drugs that do not have the right stamp on them. Failure to pay can lead to penalties and collection actions as explained below.

NC Tax Penalties for Not Filing or Paying Income Taxes

If a taxpayer does not pay their income tax in full on time, the unpaid tax is subject to penalty and daily accruing interest.  Taxpayers will also be subject to both civil and criminal penalties.

Failure to Pay and File Tax Penalties

If a taxpayer doesn’t pay or file their state income taxes in North Carolina, they may be subject to the following penalties:

• Failure to file penalties – Returns filed after the due date are subject to a failure to file penalty of 5% of the net tax due for each month or part of a month that the return is late (maximum of 25% additional tax).
• Failure to pay penalties – If a taxpayer fails to pay their tax on time, NC state will assess a late payment penalty of 10% of the tax not paid by the original due date. If the taxpayer files a timely extension, the penalty will only apply to the remaining balance due if the tax paid by the original due date is less than 90% of the total amount due.  If the taxpayer paid at least 90% of the total tax due, DOR expects the taxpayer to pay the remaining balance before the expiration of the extension period to avoid late payment penalties.  DOR will not assess the late payment penalty if the taxpayer pays the amount due with the amended return.  The additional tax due is subject to the 10% late penalty if DOR does not receive the tax payment within 45 days of the assessment or a Request for Departmental Review is filed promptly.

Fraud, Negligence, Frivolous Tax Return Penalties

• Negligence penalties and Large tax deficiency – If a taxpayer understates their taxable income, in an amount equal to 25% or more of gross income, the 25% large individual income tax deficiency or other large tax deficiency penalty will be assessed. If the taxpayer understates their income by less than 25%, a 10% negligence penalty may be applied.  If the taxpayer had an accuracy penalty assessed for federal income tax purposes, DOR will assess the 10% negligence penalty for State income tax purposes, unless a larger deficiency penalty applies.
• Fraud – If a taxpayer received a fraud penalty from the federal government and their state return was based on that fraudulent return, they will also be assessed a 50% fraud penalty for state purposes. If taxation authorities assess a fraud penalty, the state cannot also assess a taxpayer for negligence, large tax deficiency, or failure to file for that same deficiency.
• Frivolous return – If a taxpayer files a frivolous return, the state may assess up to a $500 penalty. A frivolous tax return is one that both fails to provide sufficient information to permit a determination that the tax return is correct and positively indicates the tax return is incorrect and evidences the intent to delay, impede or negate the State or purports to adopt a position that lacks seriousness.

Other Tax Penalties Assessed by North Carolina

• Failure to report federal changes – If the taxpayer fails to report changes in federal tax returns within six months of being notified by the Internal Revenue Service, the taxpayer may be subject to the failure to file penalty and will forfeit the right to any refund.
• Insufficient funds penalty – If a taxpayer writes a bad check, they will be assessed a penalty. DOR will assess a penalty of 10% of the check amount. The bad check penalty has a maximum of $1,000.
• Collection assistance fee – The state assesses a 20% collection assistance fee for any tax, penalty, or interest not paid by the taxpayer within 90 days from the payment due date. It does not apply if the taxpayer begins making payments under an installment agreement that became effective within those 90 days.
• Underpayment of estimated income tax – If interest on the underpayment of estimated income tax is due, that amount must be added to the tax due.

G.S. § 105-236 specifies additional tax penalties for taxpayers to review.

Interest

Interest accrues on any unpaid tax from the original due date. It accrues on overpayments beginning 45 days after the latest of

• (1) the date the taxpayer filed the final return,
• (2) the date the final tax return was due to be filed, or
• (3) the date of the overpayment.

On or before June 1 or December 1 of each year, the Secretary of Revenue establishes the interest rate for the next six-month period.  The interest rate for January 1st, 2019 to June 30th, 2010 is 5%. Taxpayers can find quarterly interest rate updates here.

Enforced Collections for Unpaid Taxes

If you don't pay your taxes, the DOR can enforce collection against you. The department has numerous ways to collect back taxes from people who aren't willing to pay. Here's what can happen:

• Tax warrant -- Also called a lien, a tax warrant attaches to your assets, and it secures the state's interest. It also paves the way for asset seizure. 
• Garnishment -- The NC DOR can garnish wages, bank accounts, and payments from third parties to cover your unpaid taxes. 
• Asset seizures -- Once the state issues a tax lien, it can seize your personal and real property. 

How do I stop wage garnishments from the NC DOR?

You can stop a wage garnishment by paying the tax in full or by setting up a qualifying payment agreement with the DOR. The DOR will remove the wage garnishment if you have not defaulted on a previous payment agreement, your payments are at least 10% of your gross wages, and you make a downpayment with your application. 

If you're dealing with a bank garnishment, the DOR will only remove the garnishment if you pay in full, but you must pay from a different account than the one being garnished.

How long does the NC DOR have to collect back taxes?

As of 2023, the NC DOR will abate taxes 10 years after assessment. In other words, if someone hasn't paid a tax and it's been 10 years since they filed their return or the tax was assessed, the tax will effectively disappear.

Before the law was amended in 2023, taxes only expired after 10 years if a state tax lien was filed. If the state didn't file a lien, the taxes essentially never disappeared. 

Get Help From a Tax Pro Based in North Carolina

Having unpaid taxes can feel very overwhelming, but if you ignore the situation, it will get worse quickly. The states and the IRS have more power to collect debts than nearly any other creditors, and once the NC DOR starts involuntary collections, it can be very hard to stop them. To protect your finances and your assets, you should set up payments or find other relief options for your state tax debt. 

Don't be fooled into calling the big tax relief firms that dominate the search results and advertise heavily on TV and radio. These companies lack state-specific experience, and they don't necessarily provide customers with a high level of experience even when dealing with IRS tax debt. Instead, reach out to a local tax professional who has dedicated experience with the NC DOR. Using TaxCure, you can search for local enrolled agents, tax attorneys, and CPAs. Then, you can narrow down the results to find a pro who has the exact experience you need.

To start your search for a tax pro, check out the following listings or use the search box on this page.

• Enrolled Agents in North Carolina
• CPAs in North Carolina
• Tax Attorneys in North Carolina 

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.