New York State Back Taxes: Guide for NY Taxpayers
In New York State, the Department of Taxation and Finance (DTF) collects individual income tax, estate tax, and many different business taxes. If you cannot afford to pay your state taxes, you can face strict consequences, but luckily, the DTF also offers several resolution options.
Struggling with New York back taxes? Then, contact us for help today. At the W Tax Group, our tax attorneys have extensive experience helping clients with tax debts from the IRS, New York State, and all other states.
What If You Can’t Pay Your New York Back Taxes in Full?
If you can’t afford to pay your New York State taxes in full, you may want to pay them with a credit card, a loan, or by selling some of your assets. Alternatively, you can work with the New York tax department to make arrangements for your tax debt. Here are the tax relief options in New York state.
Payment Plan on NY State Back Taxes
The NYS DTF allows qualifying individual and business taxpayers to make monthly payments on their tax debts. You can request a payment plan online f you owe $20,000 or less and can pay off the bill in 36 or fewer monthly payments. Otherwise, you need to contact the department directly if you owe more or need more time.
Interest and penalties will continue to accrue on your tax bill as you make payments, but once you set up a payment plan, the state won’t pursue any other collection actions. If you miss a payment or fail to file or pay other tax obligations, you go into default, and the DTF can rescind the installment agreement and demand full payment.
New York State Offer in Compromise
An offer in compromise is when the state agrees to settle your tax bill for less than you owe, and New York State has strict requirements for this program. Individuals can apply if they are insolvent or if full payment would create undue economic hardship. Businesses can only apply if they have filed for bankruptcy.
In New York, you can apply for an offer in compromise online or through the mail using Form DTF-4 (Offer in Compromise) and Form DTF-5 (Statement of Financial Condition). You must share very detailed information about your finances, and you must make a settlement offer. The state will only accept your offer if it looks like the most you can possibly pay.
Innocent Spouse, Separation of Liabilities, and Equitable Relief
New York State offers innocent spouse relief to taxpayers who have incurred tax bills as a result of their former spouse’s actions. To qualify as an innocent spouse, you generally must show that you didn’t know about the income that lead to the tax bill and that you didn’t benefit from it. If you knew about the tax liability but it would be unfair to hold you responsible, you may qualify under the rules for equitable relief.
To apply, file Form IT-285 (Request for Innocent Spouse Relief and Separation of Liability and Equitable Relief). If you have applied for IRS innocent spouse relief, you should include a copy of your acceptance letter. If not, you will need to fill out an additional part of the form to figure out which portion of the tax liability is allocated to you versus your spouse.
If the DTF has seized a tax refund due to your spouse’s debt, you can apply to get your portion of the refund back. File Form IT-280 (Nonpbligted Spouse Allocation). You can also file this form proactively if you’re filing a joint return and you know that it may be seized due to your spouse’s debts.
You can request penalty abatement if you disagree with the penalty or had reasonable cause to incur the penalty. You will need to explain why you paid or filed late. If the DTF agrees, it will waive some or all of your penalties. If you don’t have reasonable cause, you may qualify to get first-time penalties waived.
Appealing New York State Tax Assessments
If you disagree with a tax assessment, you have the right to appeal. You also have the right to protest if you receive a Notice of Determination or Notice of Deficiency that outlines protest rights. You must file the protest in writing by the date on the notice.
If you don’t appeal or protest by the due date or if you’re dealing with a tax issue that doesn’t include the right to protect, you can request a review. To appeal the results of an audit, review your audit notice for instructions. If you have new information about your audit, you can request a courtesy conference, but only if you haven’t requested an Advisory Opinion or challenged the results in court.
What Happens If You Don’t Pay Taxes in New York?
If you don’t pay your state tax liability, you will incur penalties and interest on your account. The New York DTF will also send you a notice of deficiency. If you ignore the notice, the state will issue a tax warrant and pursue collection actions against you. Here is an overview of what happens if you don’t pay New York State taxes.
Tax Penalties for Late Returns and Unpaid Taxes
The New York DTF assesses the following penalties for individuals who file or pay their tax returns late:
- 5% monthly penalty for late returns, up to 25% of the balance, and a minimum penalty of $100 once you are 60 days late.
- 5% for unpaid taxes per month, up to 25% of the balance.
- 10% of the unreported tax if the tax reported on your return is $2,000 or 10% less than you actually owe. The DTF uses the larger number.
- 5% of the unreported tax if you underreported the tax due to negligence, plus 50% of the interest related to the underpayment.
- 2x the underreported tax if you underreported the tax due to fraud.
- $5,000 plus other applicable penalties if you file a frivolous return.
There is also a penalty if you underpay your estimated tax. This is the federal short-term interest rate plus 1.5% but at least 7.5%.
Tax Warrants in New York State
The state can issue tax warrants against people and businesses that have unpaid tax liabilities. A tax warrant creates a lien against your real and personal assets. It also gives the state the right to levy your assets. Because the lien is a public record, lenders will usually not give you loans, and if you sell your assets, the proceeds (up to the balance of your tax debt, penalties, and interest) will go to the state.
The state also publishes the top 250 individual and business taxpayers with warrants against them. Generally, your name will not be published if you set up a payment agreement or work with the DTF to make suitable arrangements for your tax liability.
Tax Levies in New York
Once a tax warrant has been issued, the state has the right to levy your assets. Most commonly, New York seizes your bank accounts, but the DTF also has the right to seize payments from third parties such as rent payments. If you’re a business taxpayer, the DTF can seize cash on hand or business assets such as inventory or equipment.
New York State Income Execution
The DTF can garnish your wages through an income execution. First, the state asks you to voluntarily pay 10% of your wages. If you don’t, the DTF will send a notice to your employer, and they will withhold up to 10% of your gross wages to send to the DTF. This is also called a wage levy.
If you have unpaid taxes in New York, the DTF can seize your real or personal property. If you are a business taxpayer, the DTF agents can lock your place of business and deny you entry. They can also remove all of your merchandise.
The DTF will notify you of the auction time and place if your property has been seized. You can get the property back if you pay in full or make other arrangements for your tax debt. At this point, you must pay the tax, interest, and penalties plus the expenses incurred in the seizure and auction.
Loss of Business Licenses and Certificates
The DTF can revoke your business licenses if you have unpaid taxes. If you posted a bond to get the license, the state has the right to liquidate the bond and apply the proceeds to your tax bill. To get a new license, you will need to post a new bond.
If you don’t pay your sales tax bill, the DTF can revoke your Certificate of Authority. Without this certificate, you cannot legally sell products or services subject to sales tax.
Common Notices From the NY Department of Taxation and Finance
The NY DTF sends several notices including the following:
- Notice of Determination — shows tax assessments that you owe.
- Notice of Deficiency — applies when you have a delinquent tax bill.
- Form DTF-160 or Form DTF-161 (Account Adjustment Notice) — details adjustments made to your account.
- Form TR-210 (Letter about a possible refund) — lets you know that you may be entitled to a refund.
- Statement of Audit Changes/Adjustment — shows changes to your tax return that resulted from an audit.
- Form DTF-978 (Notice to Judgment Debtor or Obligor) — gives you a warning of a tax levy.
These are just some of the notices the DTF sends to taxpayers. If you have received a notice and need help, contact a tax attorney today. They can decipher the notice for you and advise you on what to do next.
Help For Taxpayers: New York State Taxpayer Advocate Office
The Taxpayer Rights Advocate Office helps taxpayers who have complex tax issues that they can’t resolve with the NY State DTF. To request help, you can file Form DTF-911 (Request for Assistance from the Office of the Taxpayer Rights Advocate). This office is part of the DTF, but it operates independently.
Unfiled Returns? New York State Voluntary Disclosure Program
If you have unfiled tax returns, the Voluntary Disclosure Program lets you come forward and resolve the issue on your own. You can only qualify if the state has not sent you a bill or audited you for the tax period in question, and you must not be under criminal investigation by any New York State agencies.
To apply, you need to complete the Voluntary Disclosure application. This requires you to note the taxes you owe, explain why you didn’t file or pay, and if applicable, tell the NY DTF why you deserve a limited look-back period. This just means that the state only looks back a certain amount of time, regardless of how long it’s been since you filed.
If you’re approved for the program, you won’t have to pay any penalties. Additionally, the state won’t persecute you if you committed a criminal offense by not paying taxes. However, this only includes the tax periods and amounts covered on the application. If you hide other taxes, you may face persecution.
Statute of Collections on New York State Taxes
The department normally has three years from the date you filed a return or the due date if later to assess taxes against you. Similarly, you have three years from a return due date to file for a refund. If tax fraud was involved or you understated your income by 25%, the state can go back six years. There is no statute of limitations on unfiled returns.
The state can take up to 20 years to collect unpaid tax debts. NYS tax warrants also last for 20 years. This is in contrast to the IRS which has a 10-year statute of limitations on tax debt collection.
FAQs About New York State Taxes
Here are some questions that we hear about New York state taxes. If you have additional questions, please feel free to contact us directly.
1. What if I can’t pay my New York State taxes?
If you can’t pay your New York State taxes, you should look into a payment plan or an offer in compromise. Depending on the situation, you may also qualify for penalty relief, innocent spouse relief, or hardship status.
2. What happens if you don’t pay taxes in New York?
The New York Department of Taxation and Finance will send you a notice of deficiency if you are late on your tax bill. If you don’t pay, the state can issue a tax warrant. Then, it can seize wages, bank accounts, and other assets.
3. Can you lose your driver’s license for not paying taxes in New York State?
Yes, the state can suspend your driver’s license if you owe more than $10,000 in personal back taxes. You can avoid losing your license if you have a commercial driver’s license (CDL), your wages are being garnished, you receive public assistance benefits or Supplemental Security Income (SSI), or you pay court-ordered child or spousal support. If you’re worried that the state is going to suspend your license for unpaid taxes, contact a tax attorney as soon as possible.
4. Will the NY DTF take my tax refund for back taxes?
The NYS DTF will seize your state or federal tax refunds to cover your delinquent tax bill. This will happen if you have an outstanding tax liability that you have not made arrangements on, but the state may also take your refunds if you are on a payment plan or get an offer in compromise. This is called a refund offset.
5. What should I do if I have back taxes in New York?
Contact a tax attorney with experience helping taxpayers with New York back taxes. A tax attorney can help you review your options, and they can communicate with the NY DTF on your behalf.
Get Help With New York Back Taxes Today
At the W Tax Group, we have extensive experience helping taxpayers deal with the IRS, the New York Department of Taxation and Finance, the Michigan Department of Treasury, the Indiana Department of Revenue, the Illinois DOR, and the taxing authorities in every other state.
Tax issues can be stressful and intimidating, but the sooner you deal with them, the better. Don’t wait until you’re dealing with severe collection actions. Instead, get help today. Contact us at the W Tax Group to learn more.