If you find yourself asking, “What if I can’t pay my state taxes this year?” you may be in a financial bind. While owing money to the government is never a good thing, many states offer resources to help you out.
Of course, you may face a penalty for not paying state taxes, or for paying state taxes late. As such, it’s best to prepare for tax season ahead of time whenever possible.
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What should you do if you can’t pay your state taxes?
Whether you pay in quarterly estimated payments or withhold money from your check, staying on top of your taxes is important. If you don’t, you might face a hefty bill come April 15 – not to mention penalties, fees, interest, and even the possibility of jail time.
And if you’re worried about budgeting enough money for your tax bill, putting a handy tool like RoarMoneySM in your pocket can help. Whether you need assistance tracking your spending, budgeting, or saving, we have the tools to make it happen!
Why should you not ignore tax debt?
If you can’t (or don’t) file your taxes, you may face several consequences, such as a penalty for not paying state taxes, garnished wages, or liens on your property. Here are a few reasons why you should not ignore your tax bill.
Penalties and interest
The IRS can assess what’s known as a failure-to-pay penalty if you don’t pay your federal taxes. This is equal to 5% of your unpaid tax bill, up to a maximum of 25%, per month that your return is late. You may also face interest on the unpaid balance.
But that’s just for federal taxes. Every state also assesses its own penalties, fees, and interest up to various maximums if you fail to pay.
States may also garnish your wages (pull money from your paycheck) if you don’t pay taxes. Some states may also garnish bank accounts or expected contract payments.
Note that some income, such as Social Security and disability payments, may be protected.
If you fail to pay your taxes, the government might send you a “Notice of State Tax Lien.” This is the government’s legal claim against your property, such as real estate, personal property, and financial assets. The lien will also show up on your credit report, which can make it difficult to get loans later.
Statute of limitations
Every state has a different statute of limitations for how long they can issue a lien or pursue your tax debt. In the case of the federal government, they can chase down your tax debt for up to ten years (barring cases of fraud).
5 alternative options if you can’t pay your state taxes
If you can’t pay your taxes, you do have a few options. However, some come with fees, so choose wisely!
Check into your state tax payment options
Many states offer programs to help cover your tax bill, especially if you’re a low-income worker. Options may include repayment programs, tax assistance, or debt forgiveness.
Request an extension
Each state has its own extension requirements. Some offer automatic extensions, while others require you to request one. And many states charge late payment penalties even with an extension.
If you think you need to file an extension, you can talk to your accountant or tax official. Or, if you want to file your tax returns and an extension for just $25, you can work with our partners at 1040.com for a hassle-free experience!
Many states also let you set up a payment plan to pay your tax debt in installments. Some may also bundle payment agreements with partial debt forgiveness to knock down the size of your debt. Paying something now is better than nothing at all!
Utilize a credit builder loan
If your tax bill is over $250, you might consider taking out a low-interest Credit Builder Loan to cover your debt. With loans up to $1,000 – up to $500 upfront – you can avoid any money-eating fees while building your credit at the same time!
Borrow a 0% APR cash advance
Another option is to take out a 0% APR Instacash advance with MoneyLion. You can borrow up to $1,000 – depending on your average income – to cover your state tax bill now. Just bear in mind that you’ll need to repay your cash advance in full come payday!
Worried about paying state taxes this year? MoneyLion can help!
If you’re worried about paying state taxes late this year, MoneyLion can help your mind by building an all-in-one Safety Net.
By bundling our RoarMoneySM deposit accounts, up to $1,000 in no-interest cash advances, and automated investing, we can help you prepare for life’s big expenses. Then, when tax time rolls around, you’ll have all the cash you need to pay up – minus those pesky penalties and fees. And with all these tools at your side, you’ll never have to ask yourself, “What if I can’t pay my state taxes?” again!
Why do I owe state taxes but not federal?
You may owe state taxes if your state’s tax brackets differ from the federal brackets, you don’t withhold enough from your checks, or your income changes during the year.
Does the IRS forgive tax debt after 10 years?
The IRS has a 10-year statute of limitations on collecting taxes from tax assessment date. However, the IRS can enforce collection via garnishments or liens until then.
Will the IRS settle for less?
The IRS can settle for less via an Offer in Compromise. However, you won’t qualify if you can afford your debt, haven’t filed returns, or are in bankruptcy proceedings.