Owing both the IRS and your state tax agency can be confusing, especially when you are receiving separate notices and facing different deadlines. Resolving one debt does not automatically resolve the other.
If you owe both federal and state taxes, understanding your options can help you act before the problem gets worse. If after reading this blog you need further help resolving your tax debt contact PJN Tax Solutions.
The IRS and State Tax Agencies Collect Separately
Your IRS debt and state tax debt are generally separate obligations. Making arrangements with the IRS does not automatically create an agreement with your state, and resolving a state balance does not eliminate what you owe the IRS.
That means you may need to communicate and negotiate with two different taxing authorities at the same time.
Each agency can have its own collection procedures, payment requirements, deadlines, and resolution programs. State rules also vary depending on where you live, making it important to look at your entire tax situation rather than focusing on only one balance.
What Can Happen If You Don't Address the Debt?
Ignoring tax debt can make the problem worse. The IRS may add penalties and interest and can use collection actions such as liens and levies.
State tax agencies may also pursue collection under state law. If you owe both agencies, dealing with the problem early can help you avoid facing multiple collection actions at once.
Which Tax Debt Should You Pay First?
There isn't one answer that works for every taxpayer.
You may be tempted to pay whichever agency is sending the most threatening letter, but your overall financial situation should be reviewed first. Factors that may affect your strategy include:
- How much you owe each agency
- Whether all required tax returns have been filed
- Whether either agency has begun collection action
- Your income and monthly expenses
- Your assets and available cash
- Whether you can afford monthly payments
- The type and age of the tax debt
A tax resolution professional can review both balances and help determine which issues require immediate attention.
Can You Set Up Payment Plans With Both Agencies?
Possibly. The IRS offers payment plans for eligible taxpayers who cannot pay their balance in full right away.
Many states also offer payment arrangements, but the rules and terms vary. This means you may be making payments to both agencies at the same time.
The key is making sure the combined payments are affordable. A tax resolution strategy should consider both debts before you commit to monthly payment amounts.
Could You Settle Your Tax Debt for Less?
In some situations, taxpayers may qualify for programs that reduce the amount they ultimately have to pay.
For federal tax debt, the IRS's Offer in Compromise program allows qualifying taxpayers to settle a tax liability for less than the full amount owed. The IRS considers factors such as ability to pay, income, expenses, and asset equity when evaluating an offer. It also makes clear that the program is not appropriate for everyone.
Some states have their own settlement or hardship programs, but the rules vary significantly.
Qualifying for relief with one agency does not necessarily mean you will receive the same result from the other.
Don't Forget About Unfiled Tax Returns
Before many tax resolution options are available, you may need to get your federal and state tax filings current. The IRS generally requires required returns to be filed before approving certain payment or settlement options.
If you have unfiled returns, determining what needs to be filed is an important first step. Filing those returns can also give you a clearer picture of how much you actually owe.
One Tax Problem Requires a Coordinated Strategy
When you owe both the IRS and your state, trying to solve each problem separately can make an already stressful situation harder.
A tax resolution professional can review your federal and state tax debts together, identify urgent collection issues, determine whether returns are missing, evaluate available resolution options, and help develop a strategy that fits your financial circumstances.
Get Help With Your IRS and State Tax Debt
Owing both the IRS and your state can be overwhelming, but you don’t have to handle it alone.
Call PJN Tax Solutions today. Our tax resolution team can review your situation, explain your options, and help you move toward resolving your tax debt.