Wisconsin State Tax Relief Options and Back Tax Consequences
Do you have unpaid taxes or unfiled returns in Wisconsin? Then, you need to act quickly. The Wisconsin Department of Revenue (DOR) has broad powers to take action against people who have unpaid taxes in this state. The state can take your wages, bank accounts, and other assets. The DOR can even suspend your professional licenses, making it impossible to earn money.
But luckily, the department is willing to work with people. There are many tax resolution options in Wisconsin. To help you out, this guide looks at the tax resolution options in Wisconsin. Then, it outlines what can happen if you don't pay your Wisconsin state taxes.
Tax Resolution Programs in Wisconsin
The Wisconsin Department of Revenue understands that sometimes extenuating circumstances can prevent you from paying your tax bill. To help you get caught up, the state offers payment plans and hardship programs.
Want to look at your options for dealing with back taxes in Wisconsin? Here is an overview of the state's tax resolution programs.
The WI DOR may allow you to make monthly payments on individual or business tax debts. You can apply online or by filing Form A-771 (Request a Payment Plan). Wisconsin doesn't advertise set terms for its payment plans. Instead, the state sets up payment plans on a case-by-case basis depending on your financial situation. You can read more about Wisconsin DOR's state tax payment plan here.
Wisconsin Offer-in-Compromise Program
Wisconsin has an offer-in-compromise program for people who can't afford to pay their tax bills in full. An offer in compromise allows you to reduce your tax debt for less than you owe. This program has very strict eligibility requirements and a lengthy application process.
Innocent Spouse Relief in Wisconsin
Wisconsin is a community property state, which means its rules for innocent spouse relief are very complicated. They also differ from the IRS's innocent spouse relief rules. When dealing with IRS taxes, you can apply for innocent spouse relief if you filed a joint return and your spouse underreported their income without your knowledge. If the IRS approves your request, you won't be responsible for the taxes incurred by your spouse.
This is not the case in Wisconsin. When spouses file jointly in this community property state, they both share the tax liability for the income reported on the return. They also share the liability for any unreported income. As a result, innocent spouse relief generally only comes into play when married couples file their tax returns separately.
Because Wisconsin is a community property state, married couples who file separately are each supposed to report half of the income. For instance, if one spouse earns $100,000 and the other spouse earns $0, they should each report $50,000 on their individual tax returns. However, there is an exception to this rule.
When filing separately, if a spouse has income that they haven't shared with or told the other spouse about, they must report all of it on their tax return. To give you an example, say that Betty earns $40,000 at a business that her spouse Billy absolutely doesn't know about, and Betty doesn't give Billy any of the money from this income. When Betty files her separate return, she should report all $40,000, and Billy doesn't have to report any of that income. If Betty underreports her income that year, Billy is not responsible.
However, if Betty had shared the funds with Billy, he would be responsible for half of the tax bill. Similarly, if Betty told Billy about the funds, Billy would also be responsible. Because they're still married, the community property rules apply, even if the couple lives in separate homes.
Generally, this is the only type of situation where innocent spouse relief applies in Wisconsin. It typically comes into play with spouses who no longer communicate and live very separate lives. To apply for innocent spouse relief on Wisconsin taxes, you must apply within two years of the date the state starts collecting on the underreported tax.
Because this is a very complicated section of the legal code, you should work with a local tax professional if you want to apply for innocent spouse relief in Wisconsin.
Injured Spouse Relief in Wisconsin
Injured spouse relief is not the same as innocent spouse relief. Injured spouse relief applies when the state tries to take your tax refund for a tax debt owed by your spouse or ex-spouse.
If you are married and filing a joint return, the WI DOR cannot take your portion of the refund to pay for your spouse's old debts. Generally, this only applies to debts incurred by your spouse before you got married. To protect your refund, send a copy of IRS Form 8379 (Injured Spouse Allocation) to the WI DOR. You can also submit this form with your Wisconsin tax return. Put code "05" in the special conditions box.
To apply for injured spouse relief after a divorce, send a copy of your divorce decree to the WI DOR. Note that you cannot use divorce decrees to retroactively classify community property income as separate income.
Hardship status is when a state tax agency or the IRS suspends collection actions against you because you are suffering economic hardship. The Wisconsin Department of Revenue does not advertise a hardship program for taxpayers. If you cannot afford to pay your taxes, you should apply for the offer-in-compromise program.
Alternatively, bankruptcy can eliminate some state taxes. You can also request hardship relief if the state is garnishing your wages, and it's causing economic hardship.
The WI DOR only mentions penalty abatement in rare situations. There are situations where the state will abate certain penalties if you have reasonable cause. This includes penalties for failure to disclose, understatement penalties, or material advisor penalties. Generally, the WI DOR can not abate any penalties related to tax avoidance schemes for income or franchise tax. There are limited exceptions for returns filed between January 1, 2008, and May 31, 2008.
You can appeal changes to your tax return or account, late filing fees, negligence penalties, and underpayment interest. You cannot appeal regular interest or collection fees. To appeal, you must reach out to the Wisconsin Department of Revenue within 60 days of receiving the notice. If you miss this window, the assessment or fee will become final.
When appealing, you need to explain why you don't agree and include documents to support your claim. If possible, include the first page of the notice you are appealing with your request. Also, note your tax account number, letter ID, and tax period on the documents you include. You can appeal by mail, fax, or online.
Wisconsin DOR Voluntary Disclosure Program
If you have unfiled personal or business returns, you may want to look into Wisconsin's Voluntary Disclosure program. Regardless of how many returns you've missed, this program only requires you to file returns for the current year and the four proceeding years. It also waives most penalties and reduces the interest rate on the delinquent tax from 18% to 12%.
To qualify, you must reach out before the WI DOR contacts you, and you must file Form A-020 (Wisconsin Voluntary Disclosure Request). Your disclosure is considered to be voluntary as long as the department has not contacted you in the last six years. If you're dealing with sales, use, or other business taxes, you must not be registered for the tax periods related to the voluntary disclosure.
Collection Enforcement Actions for Wisconsin Back Taxes
Although Wisconsin is known for its cheese, it should be known for its strict tax collection practices. The state can issue tax warrants, seize your assets, or even take your professional license if you don't pay your taxes. Additionally, if the State of Wisconsin incurs expenses while filing a lien, garnishing your wages, or taking you to court, the DOR will add those costs to your account.
Here are some of the actions the state can take if you don't pay your Wisconsin state taxes.
A tax warrant is a lien against real property that you own in the county where the lien was filed. When the DOR files a warrant with the Clerk of Courts, it creates a public record of your tax debt.
This can affect your credit and make it hard to take out loans. The lien attaches to your assets, and if you sell them, the WI DOR has a right to the proceeds. As of 2022, the WI DOR adds $10 to your tax debt to cover the cost of filing the warrant.
Once you pay the tax debt in full, the WI DOR will notify the Clerk of Courts that the warrant was satisfied. The DOR will send the satisfaction letter immediately if you pay in certified funds such as a cashier's check. The process will take about 30 days if you pay with a check.
If you don't pay your taxes, the Wisconsin Department of Revenue can send a notice to your employer to garnish your wages. In Wisconsin, tax wage garnishments are 25% of your gross wages. This is the amount you earn before taxes, health care benefits, or other deductions are taken from your pay. Child support payments and other debt garnishments are not considered part of gross pay.
To give you an example, imagine that your weekly pay is $1250 and you have $150 taken out for an IRS garnishment and $100 for child support. This brings your gross wages to $1,000, and your employer will send $250 (25%) to the Wisconsin DOR.
If you leave your employer, they are required to withhold the total amount due to you (up to the amount you owe). For instance, if you quit your job and your final paycheck is $2,000, your employer will send all of it to the WI DOR. But if you only owe $1,000, your boss will just send that amount to the DOR.
The WI DOR also has the right to garnish spouses for tax debts that are owed by the other spouse. Wisconsin has marital property laws, and state tax debt is considered to be a marital debt.
If you can't afford a wage garnishment, you can request relief. File Form A-772 (Wage Attachment Reduction Request) online or through the mail. This form requires detailed information about your finances. The WI DOR will review your situation and adjust the amount of your garnishment if it's causing financial hardship.
The WI DOR can also use a bank levy to seize the funds in your bank account. The state can use a one-time levy to seize all of the funds in your account up to the amount of your tax debt. Or it can issue a continuous levy that seizes the funds currently in your account as well as any future deposits until the tax debt is paid in full.
If you have a joint account, the WI DOR has the right to seize all of the assets from that account. However, the state cannot seize funds from Social Security (SS), Supplemental Security Income (SSI), veteran's benefits from the US Department of Veterans Affairs (VA), Federal railroad retirement unemployment and sickness benefits from the Railroad Retirement Board, or Civil Service Retirement System and federal employee retirement system benefits from the Office of Personnel Management.
If you don't voluntarily pay your Wisconsin state taxes, the WI DOR can seize your property and sell it at auction. The WI DOR publishes a schedule of public auctions for assets that have been seized. If someone buys your assets, they also assume the debts associated with the assets.
Tax Penalties for Filing and Paying WI Taxes Late
There is a $50 fee for filing a Wisconsin income tax return late. The state can also assess a negligence penalty for failing to file on time. This is 5% of the tax due per month, and it can get up to 25%.
Wisconsin charges a delinquent collection fee of 6.5% of the taxes due, with a minimum fee of $35. In this state, your tax becomes delinquent after the assessment due date and when your statutory appeal rights expire.
The state also assesses interest on your account. As of 2022, the interest rate is 18% per year. It is assessed as a monthly rate of 1.5%.
The state also assesses the following penalties on late business tax returns:
- Late corporation income tax return, late franchise tax return, or late insurance company return — $150
- Late filed withholding report or late deposit of withheld taxes — $50 for individuals, partnerships, or fiduciaries.
- Late filed withholding report or late deposit of withholding taxes — $150 for corporations and insurance companies.
- Late filed partnership return — $50
- Late filed Form PW-1 ((Pass-Through Entity Withholding) — $50
- Late sales and use tax returns — $20
If you fail to file a corporate franchise or income tax return with the intent to evade tax, the civil penalty is 100% of the tax due. You can also face criminal penalties.
Wisconsin Delinquent Taxpayer List
Wisconsin publishes lists of delinquent individual and business taxpayers. Your name can appear on the list if you owe over $5,000 in state taxes, interest, penalties, and fees, and your appeal rights expired more than 90 days ago. The WI DOR will send you a letter before posting your name.
To avoid appearing on the Wisconsin Delinquent Taxpayer list, you need to make arrangements on your state tax liabilities. Your name won't be on the list if you pay the taxes in full, set up a payment plan, apply for an offer in compromise, or provide proof of filing for bankruptcy. Additionally, if your business is on the list for not paying sales tax, you can get off the list if you're closed for a year.
Refund Interception for Unpaid WI Taxes
If you have unpaid state taxes in Wisconsin, the state can seize your state and federal tax refunds and apply them to your tax debt. The state can also claim state vendor payments and any payments from the federal government except for salary or benefits payments. If you win over $600 in a lottery, the WI DOR can take that as well.
This rule applies even if you set up a payment plan. For instance, if you're making payments on a $10,000 Wisconsin state tax bill and you earn a $3,000 refund from the IRS, the WI DOR will take the refund and reduce your tax debt to $7,000. Then, if you win $1,000 in a lottery, the state will take that as well. Neither of these amounts will cancel out your monthly payment. You still need to pay as scheduled if you want to avoid going into default.
Occupational License Suspension for WI Back Taxes
If you have delinquent taxes in Wisconsin, the state can suspend, revoke, or refuse to issue your professional license. This applies to all occupational licenses issued by the state, including everything from acupuncturists to licensed appraisers to cemetery salespeople to electricians. As of 2022, hundreds of types of professionals are licensed by the State of Wisconsin.
To get your professional license back in good standing, you need to pay the tax bill in full or set up a payment arrangement. Generally, you need to complete Form A-771 (Request a Payment Plan) to request the payment plan. The financial details you include on this form will determine if you qualify and the terms of your payment plan.
In some cases, the state may try to take your professional license due to an estimated assessment. This can happen if you don't file your tax returns. In this situation, you need to file all the missing tax returns and pay the full amount due or contact the DOR to talk about arrangements.
Generally, if you file bankruptcy, the state will not take your professional licenses. If the state revokes, suspends, or denies your professional license, you have the right to request a hearing. However, by the time the state takes this action, you no longer have the right to appeal. At the hearing, you can only address mistaken identity issues and whether or not you have already paid the delinquent taxes.
Statute of Limitations on Tax Collection in Wisconsin
Generally, the Wisconsin DOR has four to seven years from the due date of the return to assess a tax against you. But if you underreport your income by 25% or more, the statute of limitations on tax assessment is six years from the latter of the due date or the date the return was filed. There is no statute of limitations on fraudulent returns.
However, the state has a longer amount of time to collect unpaid taxes. For instance, when the WI DOR issues a tax warrant, it stays in place for 20 years.
Get Help from a Wisconsin Tax Pro
Are you struggling with Wisconsin back taxes? Do you have unfiled returns? Is the WI DOR threatening to take collection actions against you? Regardless of your situation, if you're worried about back taxes, you need a Wisconsin tax pro to help you out.
When you work with a local tax pro, you get a professional who is experienced with the WI DOR. They understand this state's programs, and they can guide you to the best option for your situation.
Want help that you can trust with your Wisconsin tax issues? Then, use TaxCure to search for a local Wisconsin tax pro.