Overview of Virginia’s State Tax Payment Plans
If a taxpayer can’t pay back taxes in the State of Virginia, and you can’t pay in full, consider a tax payment plan. A VA tax payment plan can help a taxpayer pay off their tax balance over time. The Virginia Department of Taxation is the entity responsible for collecting and enforcing state tax laws. The Department of Taxation has many powerful ways to collect back taxes. If a taxpayer cannot pay their back taxes in full, the Department may:
- Garnish bank account(s)
- Garnish wages – which is difficult to remove once
- Place a tax lien on the taxpayer’s property
- Levy property
- Charge you interest and penalties
The state of Virginia uses the term tax lien in a different manner than the IRS. A tax lien is used to reference wage liens, bank liens, and memorandum of lien. A Virginia lien can be an actual seizure of assets through garnishments or bank seizures.
A Virginia State tax payment plan can help taxpayers avoid and cease such collection actions. Obtaining a payment plan with the Department of Taxation is generally under the discretion of the collections officer. In some cases, the Department will transfer a delinquent tax account to a 3rd party. If so, the taxpayer or the taxpayer’s representative will have to contact the third party and work out payment arrangements. We discuss eligibility for tax payment plans in more detail below.
Typical Duration for a VA Tax Payment Plan
The duration of tax payment plans in Virginia can vary from case to case. However, there are some general rules concerning plan durations. The majority of tax payment plans require the taxpayer to pay the full amount within 12 months. However, the Department of Taxation will consider payment plans up to 24 months based on the taxpayer’s financial condition. The Department of Taxation retains full discretion when deciding how long payment plans should be.
In some cases, the Department of Taxation may assign a taxpayer to a third-party collection agency. If so, it may be possible to negotiate a longer-duration repayment plan.
In some instances, a taxpayer can set up a step payment plan. A step payment plan allows the taxpayer to make smaller monthly payments to start and then increase to more significant amounts later (usually after 12 months). Therefore, a taxpayer can begin with a lower monthly payment over 24 months but can renegotiate after the first 12 months to keep monthly payments lower.
Possible Negative Consequences of a VA Payment Plan
Unlike a tax settlement (or Offer-In-Compromise), a taxpayer must repay the full amount of their back taxes. The significant advantage of a payment plan is that a taxpayer can make manageable monthly payments versus paying a lump sum amount if they were to pay their taxes in full or enter into an Offer-in-Compromise.
Another negative of payment plans is that penalties and interest will continue to accrue. Penalties and interest can be substantial and can significantly increase the amount the taxpayer must repay over the length of the payment plan. Therefore, a taxpayer can pay off their balance as soon as possible to avoid penalties and interest. When you're on a payment plan, the state can also take your state tax refund through the VA refund offset program. If the state takes your refund, you still have to make your regular monthly payment.
Despite these negatives, payment plans may be the best (and only) option for many taxpayers that lack the financial means to pay back taxes. Moreover, payment plans may help you to avoid or cease further collection action.
What If You Disagree With a VA Notice of Assessment?
If the taxpayer disagrees with the bill, they have the right to request an informal review. The taxpayer can request this by calling the Department of Taxation. If the taxpayer cannot clear their tax bill, they can request a review in writing. Written inquiries require a detailed description of why the taxpayer disagrees with the tax bill, as well as supporting documentation.
If the informal review is unsuccessful, the taxpayer also has the right to file an administrative appeal. Taxpayers must file an appeal within 90 days from the date that the Department assessed the taxes.
If the taxpayer loses the appeal, or if the taxpayer receives a Notice of Assessment and does not dispute the tax liability, they can attempt to set up a payment plan with the Department of Taxation.
How Can I Apply for a Payment Plan with the State of Virginia?
To set up a payment plan, the taxpayer generally must obtain a bill from the Department of Taxation. In Virginia, initial tax bills are called a “Notice of Assessment.” The Department of Taxation will send the taxpayer a Notice of Assessment if they owe taxes when filing their tax return but did not submit payment in full. Once the taxpayer receives a Notice of Assessment, they have 30 days to pay their back taxes in full or provide an appropriate administrative response. If they fail to respond within 30 days, they will begin to accrue penalties and interest.
Taxpayers can set up a payment plan online if you owe less than $25,000 in combined taxes, penalties, and interest and do not have any of the following:
- Criminal warrant
- Tax lien issued to an employer or bank
- Bankruptcy filing
- Assignment to a 3rd party collection agency or Virginia Tax field agent
If the taxpayer does not meet the above requirements, they can still apply for a payment plan by contacting the Department of Taxation over the phone at 804-367-8045. Even if they meet the requirements for setting up a payment plan online, they may still want to call the Department to inquire about a longer-term payment plan.
The Department of Taxation does not charge taxpayers a fee to apply for a payment plan.
What Factors Could Lead to a Default of a Payment Plan?
If the Department of Taxation approves a payment plan for a taxpayer, the taxpayer must make all your monthly payments on time. Failure to make payments on time can result in default. If the taxpayer defaults under their payment plan, the Department of Taxation will likely resume collection action. Also, a history of defaults under payment plans could impact the taxpayer’s ability to obtain a payment plan in the future. In addition to failing to make payments on time, failing to file future returns, and pay any other taxes when due could result in default.
Since defaulting can result in the termination of their payment plan, it is advisable to schedule automatic payments using their online account. The Department of Taxation accepts direct debits from their bank account, credit or debit cards, and checks.
Payment plans can be a useful tool to help taxpayers get caught up on your Virginia back taxes. While the Department is amenable to short-term payment plans, those taxpayers seeking longer-term plans will likely need to document financial hardship. An experienced tax professional can assist you in setting up an affordable payment plan. A licensed tax professional can also advise you of your rights.
If you owe VA back taxes and are unsure of your rights or options, reach out to a licensed tax professional today that has experience resolving VA state tax issues.
Disclaimer: The content on this website is for educational purposes only and does not serve as legal or tax advice. For specific help regarding your tax situation, contact a licensed tax professional or tax attorney.