Vermont: Resolution Options and Consequences of Back Taxes
The Vermont Department of Taxes collects individual income tax, corporate income tax, estate tax, sales tax, and other state taxes. If you don't file or pay your returns, the state can assess penalties and interest against you. It can also garnish wages and seize assets for unpaid taxes.
Luckily, the state also offers options to help people get caught up on their unfiled returns and back taxes. This guide outlines resolution options for unpaid state taxes in Vermont, and then, it explains what can happen if you don't pay your state tax bill.
How to Pay Your VT Taxes
You can pay your Vermont taxes online with an ACH debit or a credit card. ACH payments are free. The department charges a 3% fee for credit card payments. To pay online, go to myVTax.
Alternatively, you can mail or hand deliver checks, cashier's checks, or money orders to pay your taxes. To pay by mail, use this address:
Vermont Department of Taxes
PO Box 1779
Montpelier, VT 05601-1779
To pay in person, go to this address:
Vermont Department of Taxes
133 State Street, 1st Floor
Montpelier, VT 05633-1401
What If You Can't Afford to Pay VT Taxes in Full?
If you cannot afford to pay your taxes in full, you can request a monthly payment plan or an offer in compromise. Here are the details of those two programs.
Monthly Payment Plans
If you can't pay in full, you may be able to make monthly payments on your taxes. The department reviews requests for payment plans on a case-by-case basis, but generally, you must be able to pay off the bill within two years to qualify. When you apply, you must complete a detailed statement about your personal and business finances. If the state thinks that you can afford to pay in full, it may reject your offer for a payment plan.
Offer in Compromise
The state may agree to reduce your tax debt balance through the offer-in-compromise program. You may be able to qualify based on the following reasons: 1) you can't afford to pay the tax bill, 2) there is a legal doubt that you owe the taxes, or 3) it would be very unfair to force you to pay the taxes.
The requirements are very strict. For instance, if you claim that you can't afford to pay but the department sees that you have a lot of equity in your assets, you won't qualify. You also won't qualify if you have already gotten an offer in compromise in the last five years or if you have a history of non-compliance.
Vermont doesn't usually accept offers in compromise on trust fund taxes. For instance, if you collected sales tax from your customers but never sent it to the state, you cannot use this program to reduce your tax bill.
What If You Have Unfiled Tax Returns in Vermont?
If you have unfiled tax returns, it's usually better to be proactive and file them before the state contacts you. If you haven't filed IRS or VT individual income tax returns in years, you generally only need to file the last six years of returns. However, the timeline may vary depending on the situation. A tax pro can help you figure out the best approach in your situation.
They can also help you come up with strategies to minimize the penalties on your account. In particular, you may want to check into the state's voluntary disclosure program.
Voluntary Disclosure in Vermont
If you haven't been filing your Vermont taxes, you may be able to get caught up through the state's voluntary disclosure program. To qualify, you have to reach out to the state. You can't qualify if the state has already sent you a tax bill or started an audit.
When you use this program to catch up on state filing requirements, you can generally incur fewer penalties than if you wait for the state to find you. However, the department assesses penalties on a case-by-case basis. A tax pro experienced in Vermont can help you understand what to expect.
For corporate and business income tax, the department will generally only look back three years at the most. The lookback period is also three years for sales and use tax, but the lookback will be extended to cover any periods where you collected sales tax from your customers and didn't pay it to the state.
What If You Don't Pay Your Taxes in Vermont?
If you have unpaid taxes, the Department of Taxes will send you a notice of intent to assess. If you don't respond, the assessment will become final. Then, the department will demand payment, and if you don't pay within 60 days, the collection process will start. Here's an overview of what to expect.
Notice of Intent to Assess
When you owe state tax, the department will start by sending you a notice of intent to assess (NOIA). The notice explains why you owe the tax and the amount. It also tells you how long you have to respond.
The VT Department of Taxes sends out NOIAs in the following situations:
- You didn't file a tax return.
- You filed but didn't pay the full bill.
- You have incurred penalties and interest on your account.
- The department made changes to your refund, property tax adjustment, or renter rebate.
If you disagree with the proposed assessment, you should reach out to the department by the deadline on the notice. Usually, this is 20 to 60 days after the notice date. If you agree, you can just pay the tax or contact the state to set up a payment plan. If you don't respond to the NOIA, the assessment will become final, and if not paid in 60 days, your bill will go to collections.
The Tax Collection Process in Vermont
Here's what happens when you have unpaid taxes in this state:
- Interest and penalties — Interest and penalties will accrue on your account until you pay the liability in full. Typically, setting up a payment plan stops penalties, but interest always accrues on unpaid taxes.
- Loss of tax refunds — The state of Vermont can seize state and federal tax refunds to cover your tax bill.
- Tax liens — If the department issues a tax lien, it attaches to all of your assets.
- Wage garnishments — The department can send a notice to your employer and have them withhold money from your paychecks to cover your tax bill.
- Loss of vendor payments — If you receive payments from the state for goods or services, the department can seize those payments.
- Bank levies — The department has the right to seize the funds in your bank account up to the amount of your tax debt plus interest and penalties.
- Publication of your name — The state publishes a list of the 100 most delinquent taxpayers
- Loss of business and personal licenses — The department can rescind your business and professional licenses, rendering you unable to work.
- Assignment to a third-party collection agency — The Vermont Department of Taxes can assign an outside collection agency to collect your taxes.
How to Get Help From the Taxpayer Advocate
The Taxpayer Advocate is an independent part of the Vermont Department of Taxes, and its job is to protect the rights of taxpayers. If you haven't been able to resolve an issue through the usual channels, reach out to this organization. You should also reach out if you've been treated unfairly.
Vermont Tax Audits
The VT Department of Taxes can audit any return that has been filed with the state. Typically, the department does not select returns randomly for audits. Instead, it analyzes information from the IRS, other state tax agencies, the VT Department of Labor, and the Secretary of State. Then, when it spots discrepancies, it flags the returns for an audit.
The department will notify you if you have been selected for an audit, and the notice will outline the process. With a desk audit, you simply respond to the auditor's request by mail. For instance, the auditor may ask you to send supporting documents to back up certain claims on the return. Audits don't always cover every element of a return.
In other cases, the audit may occur over the phone or with an examiner in the Montpelier office. There are also filed audits that happen in your place of business.
What If You Disagree With a State Tax Assessment?
If you disagree with a VT tax assessment, you have the right to appeal. You must appeal within 60 days of the notice. You can start the appeals process online at myVTax, or you can send your appeal through mail or email.
After you submit your appeal, the department will send you the name of a contact person. You should call them to talk about your appeal or set up an informal meeting. If you cannot come to an agreement, your case will get scheduled for a hearing.
At that point, an attorney assigned to your case will contact you to talk about the issues. Remember this attorney works for the Department of Taxation. You may want to have your own representation.
If you and the Department attorney can't come to an agreement, the hearing will move forward. The department will send you a notice about the hearing's day and time.
FAQs About Vermont Back Taxes
Here are answers to some additional questions you may have about back taxes in Vermont. If you don't see your concern addressed, reach out to a local tax pro.
Does VT have a statute of limitations on tax collections?
The state must take action within six years of the due date or the finalization of the assessment. However, if a lien has been filed, it may survive past the six-year statute of limitations, and in most cases, liens can be renewed.
What if the state takes my tax refund for my spouse's debt?
If you file a joint return and the state seizes your refund for your spouse's debt, you can request Injured Spouse Relief from the VT Department of Taxes. If you qualify, the state will send you your portion of the refund based on the information you reported on the tax return. You can only qualify if the debt was due exclusively to your spouse, and you may need to provide a copy of the Injured Spouse Request that you sent to the IRS.
Does Vermont offer innocent spouse relief?
The Vermont Department of Taxes does not advertise an innocent spouse program. However, if you're dealing with a state tax liability that is due to actions your spouse took without your knowledge, a tax pro with experience in this state may be able to help you find a relief option. Even if you can't get relief on the state level, you can apply for the IRS's innocent spouse program.
What if you miss the deadline to appeal a tax assessment?
If you miss the deadline to appeal, you may be able to pay the tax under protest and then request a refund. Alternatively, you may want to look into an offer in compromise based on doubt as to liability. In both cases, there needs to be a legal reason why you don't owe the tax. For instance, the department must have used incorrect information when assessing the tax, or it must have applied the law incorrectly.
Does Vermont have a hardship program for people who can't afford to pay taxes?
The Dept of Taxes does not advertise a hardship program. If you cannot afford to pay your tax liability, you may want to look into the offer in compromise program. This allows qualifying taxpayers to settle their taxes for less than they owe. However, the state does offer relief for people dealing with property tax misclassifications.
Get Help With Vermont Back Taxes
If you're dealing with back taxes, unfiled returns, penalties, or other issues, you need a tax pro who has experience dealing with the VT Dept of Taxes. Every state has its own collection processes and remedy options, and to get the best resolution option for your situation, you need to work with someone who understands the rules in this state.
To get help now, use TaxCure to search for a local tax pro with experience in Vermont. Then, filter your results based on the type of tax, the issue you're having, or the solution you want. A local tax pro will provide you with personalized assistance and a resolution plan individualized to your unique needs.