Texas Tax Resolution Options and Consequences of Back Taxes
Texas doesn't have a state income tax, but the Texas Comptroller's office collects 60 different taxes, fees, and assessments, including local sales tax, state sales tax, and franchise tax. Additionally, property owners in Texas must pay property taxes to the local taxing authorities in their areas.
This guide explains what to expect if you have back taxes in Texas, and it outlines your resolution options for unpaid taxes or unfiled returns.
Resolution Options for People Who Owe Texas Back Taxes
The state offers a few different options for people who have unpaid taxes in Texas. If you can't afford to pay your tax bill in full, you may qualify for one of these programs.
Texas offers payment plans on back taxes on a case-by-case basis. Typically, the state only approves payment plans if paying the tax in full would place an undue hardship on the taxpayer. You can request a payment plan by contacting your local Comptroller's field office.
Collection actions will continue on your account even if you set up a payment plan. The state will continue to send billing notices, a lien can still be filed, and state warrants will be placed on hold until you pay your tax bill in full, which means that you cannot receive any payments from the state.
Payment Plans for Delinquent Property Tax in Texas
If you have unpaid property taxes, you may qualify to set up a payment plan to make installment payments over 36 months. Local taxing authorities grant payment plans at their discretion. They are only required to give you this option if your property is a residence homestead.
Offer in Compromise on Texas Back Taxes
An offer in compromise is when the state agrees to let you pay off your tax bill for less than you owe, and Texas does not have this option available for taxpayers. However, the state does have a penalty abatement program.
Removing penalties from your account can help lower your total tax liability.
Innocent Spouse Relief
You cannot apply for innocent spouse relief on Texas back taxes. However, if you owe federal income taxes exclusively due to your spouse, you may qualify for innocent spouse relief on the federal level.
Texas does not offer a formal hardship program for people who cannot afford their state back taxes. However, the state occasionally offers relief programs. For example, the Comptroller offered payment plans to businesses that could not pay their sales tax bills due to the Covid-19 pandemic.
If you cannot afford to pay your tax bill, you should reach out to the state. The Comptroller's office may be able to provide you with relief in extreme situations.
You can request a waiver of penalties due to unpaid or unfiled Texas taxes. Use Form 89-224 if your penalties are due to a late report and/or payment, and use Form 89-225 if your penalties are due to failure to file and/or to pay electronically.
You can mail these forms to the Texas Comptroller, or you can send them to the state over email. Alternatively, you can request a penalty waiver by writing to the state, but you need to include all the details requested on the state's official penalty waiver request forms.
If the Comptroller audits your tax report and you disagree with their position, you have the right to request a reconciliation conference with the audit supervisor. You can also request guidance from the Tax Policy Division.
If you and the auditor cannot come to an agreement during reconciliation, you may request an Independent Audit Review Conference (IARC). An IARC is an informational meeting between you, the auditor, and an Independent Audit Reviewer. You will receive a Texas Notification of Audit Results when the IARC decides on your case.
You can request a redetermination hearing if you disagree with the decision, but you must make your request on or before the final date on your notice. The final date is usually 60-days after the statement date on the notification, but if the state makes a jeopardy determination, the final date is 20 days after the determination date.
If you pay your balance plus penalties and interest in full, you have six months from the final date to request a refund.
As of 2021, Texas does not have a current amnesty program for unpaid taxes. The state had a tax amnesty period from May 1st, 2018, to June 29th, 2018. During this period, eligible taxpayers could pay their back taxes without worrying about criminal persecution.
Enforcement Actions for Unpaid Texas Taxes
Typically, if you refuse to pay your state taxes, the state will require you to post a security bond. Then, the state will file a tax lien on your property, freeze or seize your non-exempt assets, and suspend your permits or licenses. The state may also file criminal charges against you.
Here is a breakdown of the back tax collection activities used in Texas.
Texas state law requires the state to secure its interest in back taxes through a lien. A tax lien is when the state makes a legal claim against your property for back taxes, penalties, and interest.
A tax lien automatically attaches to your property on January 1st every year in relation to property taxes. If you don't pay your property taxes, the taxing authority has the right to foreclose, seize the property, and auction it off to pay the tax bill.
The State of Texas may seize your assets if you have unpaid taxes. The Comptroller's office has the right to seize and sell any of your non-exempt assets to cover your tax bill. Exempt assets include your homestead, some personal belongings, and a vehicle of a reasonable value.
Penalties and Interest on Delinquent Tax in Texas
Texas applies a $50 penalty for every tax report that is filed late. The penalty applies the day after the due date. You also face a 5% penalty if the tax is up to 30 days late or a 10% penalty if the payment is more than 30 days late.
An additional 10% penalty applies if you pay the tax after the date noted on the Notice of Tax/Fee Due. Paying late brings your total penalty to 20%.
For example, if you file your sales tax report on time, but you don't pay until two weeks later, your penalty will be $100 on a $2,000 tax bill. If you don't pay for over a month, your penalty will be $200. If you pay after the Notice of Tax Due date, your penalty will be $400.
Texas assesses interest starting on the 61st day after your due date. The interest rate is the prime rate plus 1%, and it adjusts annually.
Texas Secretary of State can involuntarily terminate your entity if you fail to meet the requirements of filing annual reports, paying the Texas franchise fee, maintaining a registered agent, or paying SOS filing fees. This means that you may become liable for business debts and lawsuits, won't be able to open business bank accounts, and will not be able to take out loans. Sometimes you will not be able to operate your business. You will need to comply with the requirements in order to reinstate your Texas business.
Penalties for Past Due International Fuels Tax Agreement (IFTA) Taxes
IFTA taxes have different penalties than other Texas state taxes. For IFTA tax, the minimum penalty is $50 or 10% of your total tax liability, whichever is greater. Interest begins to accrue the first day your bill is late, and it accrues monthly. As of 2021, the annual interest rate on IFTA is 5%.
Penalties and Interest on Delinquent Property Taxes
Typically, property tax bills are mailed in October, and they are due January 31st. If you pay on or after February 1st, your property tax bill will incur penalties and interest. Note that if your tax authority mails your bill later, it is not late until 21 days after the postmark date.
Late property tax bills in Texas incur a 6% penalty on February 1st, and they incur an additional 1% penalty each month until July 1st. Then, the penalty becomes 12% of the balance. If the taxing authority hires a private attorney to collect the tax, they can charge an additional penalty of up to 20% of the balance.
For example, if your unpaid property tax is $2,000, your penalty will be $240 on July 1st. If the taxing authority hires an attorney to collect your unpaid taxes, they may add a penalty of up to $400.
On top of penalties, you also face interest of 1% of the balance per month. There is no maximum amount on the interest. To continue with the above example, by July 1st, your account balance would have incurred interest of 6% or $120 on top of the penalties.
Permit and License Suspensions for Unpaid Taxes in Texas
If you don't report or file taxes, the Comptroller's office will conduct a hearing to decide whether or not to suspend any permits or licenses issued by the agency. If you don't appear at the hearing, the Comptroller's office will suspend your licenses and permits.
You can avoid the hearing by filing and paying your back taxes or posting a security bond required by the state.
The Comptroller's office will send you an estimated billing if you don't file a required tax report. The billing notice outlines penalties, interest, and collection actions, and it explains what to do if you disagree.
If you don't file, pay tax, or post a security bond, you may receive a notice of hearing to cancel or suspend your licenses or permits. You should also receive notices before the state takes any collection actions on your account.
In some cases, the Comptroller's office may hand the account to the Attorney General. If you don't respond to notices from the Texa Attorney General's Office, you can face civil actions.
Statute of Limitations on Tax Collection in Texas
In Texas, the Comptroller has four years from the date the tax is due to assess a tax liability. However, this statute of limitations does not apply in the following situations:
- When the taxpayer fails to file a sales tax return.
- The taxpayer files a sales tax return with a gross error that underreports the tax due by at least 25%.
- When the taxpayer files a fake return with the intent to evade taxes.
The taxpayer and the Comptroller may agree in writing to extend the statute of limitations for up to 24 months. The limit is paused if a bankruptcy case is pending, between the date of a protest payment and the filing of a lawsuit, and while a redetermination or refund hearing is pending. The Comptroller's office only has three years from the date of a deficiency determination to seize assets.
Get Help With Unpaid Taxes in Texas
If you have unpaid taxes in Texas, a tax professional can help. They can look over your records and help you identify the best resolution option for your situation. Then, they can help you negotiate an arrangement with the state. To learn more, contact a Texas tax pro today. To browse top Texas professionals by license type, please navigate using the links below. Attorneys, enrolled agents, and CPAs can help resolve problems with the Texas Comptroller and IRS issues.
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.