What happens if you don’t have the money to pay your state income tax bill?
As the Center for Public Integrity has investigated the impact of state taxes on economic inequality, we kept hearing how states’ collection practices weighed on lower-income residents. But states typically put fewer specifics on their websites than the IRS does about collection policies, including what options they offer to people in financial hardship.
So we reached out to ask all 41 states with an individual income tax on wages, plus Washington, D.C., for explanations. Thirty-seven provided details, some quite thin. New York offered a perplexing no-comment. And the rest ignored our many, many attempts to get a response.
Our reporting filled some of the gaps, showing sharp differences in how states collect on state income tax debts vs. how the IRS approaches federal debts.
Many states can collect tax debts for longer than the IRS, which will generally stop pursuing a debt after 10 years.
A few states won’t agree to settle the debt with a smaller payment for people in serious hardship, whereas the IRS will do so through a process called “offer in compromise.”
A number of states have less-flexible installment plans for paying back debt than the IRS offers.
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And if the IRS determines that you don’t have enough money to pay both basic living expenses and taxes, it can agree not to take any of your income or assets temporarily, or for the indefinite future. Only about a quarter of states with income taxes told us they had a temporary or indefinite collections pause.
One example of how the rules can vary between a state and the federal government: In Louisiana, an installment plan for repayment can last no more than three years and requires a 20% down payment, according to the application form the state Department of Revenue provided us. The IRS has a timeline twice as long and does not require a down payment.
Hardship options can vary a lot in practice in ways the rules don’t always capture, too. Offers in compromise are a case in point. We heard variations on this theme from attorneys all over the country:
“It’s very hard to get one from the state,” said Paul Tuttle, director of the Low Income Taxpayer Clinic at Southeast Louisiana Legal Services. “I get offers accepted all the time with the IRS, but very rarely with the state.”
Read the related investigation
So, what can you do if you’re in hardship and can’t pay your tax bill? A few tips:
- Don’t ignore it. Penalties and interest will increase your tab. Also, a state can garnish your wages, take money from your bank account or, in a number of cases, yank your driver’s or professional license. Reach out to your state to ask for hardship assistance before they take these collection actions. Below, we’ve compiled what we know about each state’s approach to hardship.
- Get legal help. Try one of the low-income taxpayer clinics around the country that receive grants from the IRS to provide free or low-cost help. They can assist with state tax problems as long as you also have federal tax issues for the same period. (Occasionally, clinics receive other funding that allow them to work on state tax challenges directly.)
- Hang on to those records. As tempted as you might be to toss the collections notices when you can’t pay, “make sure you keep all of your paperwork,” said Christopher Q. Moe, a staff attorney at Kansas Legal Services who’s helped taxpayers in hardship. Those documents will make life easier when you’re seeking help.
Click on a state below to see how your state compares:
Alabama
The state did not respond to our collection-practices survey, though the Department of Revenue later answered a few questions about its policies, pointing us to this page on its website.
The agency says on its site that it can offer payment plans, without giving specifics such as maximum length of time allowed. It says that it may file a lien even if it has approved such a plan.
Alabama has an Office of Taxpayer Advocacy that “can help provide possible relief for taxpayers who, after exhausting all other methods of appeal or review, still may have an unresolved tax issue.” The office’s site said the state does not accept offers in compromise to settle tax debt for less than the full amount.
Alaska
Not applicable; no individual income tax.
Arizona
Taxpayers experiencing hardship can apply for a “collections hold,” a temporary pause on collection activity, the state’s Department of Revenue told us. That requires completing a collection information statement. Penalties and interest will continue to mount during the pause.
Taxpayers in hardship can also ask the agency to settle the debt for less than the full amount through an offer in compromise, according to state statute and the agency’s website.
The agency also says on its site that it offers payment plans to repay tax debt in installments. The installment periods it outlines range from six to 12 months, depending on the amount owed, though it tells people to call to make arrangements for larger debt. The state notes that it may file a tax lien against some people enrolled in payment plans.
Arkansas
The state Department of Finance and Administration didn’t answer our questions about hardship assistance. But its revenue division says on its website that taxpayers in hardship can submit an application for an offer in compromise to settle tax debt for less than the full amount. They must typically be insolvent to qualify, meaning that their “expenses exceed income or their liabilities exceed their assets.”
A taxpayer in hardship who is not insolvent can request a payment plan, the agency said on its website. The state considers those on a case-by-case basis. When it agrees to offer one, the agency will file a lien “as required by law.” We could find no details about the terms of such plans, such as the length of time allowed, on the state’s website.
The agency gave us this general statement: “The Arkansas Department of Finance and Administration makes multiple attempts to contact and work with taxpayers regarding individual income tax debt with an understanding that each scenario is unique.”
California
The state Franchise Tax Board said California will pause collections in hardship cases for up to 12 months for taxpayers who qualify after filling out a financial statement. After 12 months, the taxpayer must “substantiate another financial hardship if they are still unable to make payments.”
Otherwise, taxpayers can request an installment payment plan. Those can typically give people three to five years to pay off the debt, the agency said on its website. The state may file a lien as a condition of agreeing to a repayment plan, the agency noted there.
The state also has an offer-in-compromise process for settling debt for less than the full amount, the agency’s site says.
Evan Phoenix, director of the Federal Tax Clinic at Public Law Center in Santa Ana, said he’s had an easier time getting economic hardship help for clients from California than the IRS. However, Lisa Sperow, executive director of the Cal Poly Low Income Taxpayer Clinic, said she has had more success getting offers in compromise accepted from the IRS than California.
Phoenix noted that California also is trying to address tax liability among lower-income households by having a more progressive tax structure that charges them less income tax and offers more credits and refunds.
“California is trying to address tax liability before it becomes a liability,” he said.
Colorado
The state considers requests for payment plans and “may allow the taxpayer to make monthly payments until the debt is fully paid,” the state Department of Revenue told us. Its frequently-asked-questions page about such plans does not specify the maximum time allowed, but it encourages people to pay as quickly as possible because interest and penalties continue to mount.
The agency can settle tax debt for less than the full amount through an offer in compromise. Prerequisites include the IRS having accepted an offer for the same tax period, no state offer in compromise for prior tax debt and all tax returns filed as required. “Any submitted offer must reflect the taxpayer’s maximum capacity to pay,” the agency said on its website.
Connecticut
Connecticut’s Department of Revenue Services sent state code rather than answering our questions. The code doesn’t detail hardship options. However, an agency policy statement from 2017 says it offers payment plans for repaying debt in installments (without noting what those plans entail). “A tax lien may be placed on your property to secure our ability to collect the tax even if a payment plan is approved,” the statement warns.
The agency’s website also says it has an offer-in-compromise process to settle debt for less than the full amount. It offers some details here.
The agency’s 2017 policy statement also lists information for contacting its Taxpayer Advocate Office if you cannot resolve your issue through normal channels at the department. (We called that number. It still works.)
Sara Spodick, director of the Tax Clinic at Quinnipiac University, said the state’s offer-in-compromise process lacks standardized guidelines.
“We haven’t always found rhyme or reason,” Spodick said. “We’ve had some frustrating cases at our clinic where we were unable to obtain an offer in compromise for people that we really believe should have had that ability to have that fresh start.”
Spodick said the state can put your account into something similar to the IRS’ non-collectible status, pausing collections activity against you. But here too, she said, it’s difficult to request, and the decision on whether you qualify can seem arbitrary.
Delaware
The state can temporarily delay collections if you file for bankruptcy protection or demonstrate that you have limited assets after typical household expenses, the Delaware Department of Finance’s Division of Revenue told us.
On its website, the agency notes that penalties and interest will continue to mount during this pause, and it will file a notice of judgment to protect its ability to collect later.
The Division of Revenue offers payment plans for repaying tax debt in installments, it says on its site. The agency will file a judgment against you if your plan stretches out the payments more than four years.
“We may ask you to sell or mortgage any assets to secure funds to pay the taxes,” the agency says on its site. “We may ask you to secure a commercial loan if we determine that you are able to do so.”
The agency’s website does not reference an offer-in-compromise process for settling tax debt for less than the full amount. Asked whether it has such a program, the Division of Revenue said in an email: “We do not have a specific policy beyond ‘taxpayer has demonstrated that they have limited assets after typical household expenses as reviewed by collections staff.’ These items are handled on a case by case basis.”
But what the agency described in its email is not a conventional offer-in-compromise process: “In cases of settlements and hardships, Delaware generally does not settle on tax liability, is unlikely to settle on interest unless something in our tax administration impacted payment, and will work with reducing penalty based on hardship attributes and/or the taxpayer’s prior filing compliance history.”
Florida
Not applicable; no individual income tax.
Georgia
The state did not respond to our collection-practices survey. But on its website, the state Department of Revenue specifies that taxpayers in hardship can apply for payment plans, which can spread out repayment for up to five years. The site also notes an offer-in-compromise process that can settle debt for less than the full amount.
Taxpayers in bankruptcy proceedings or requesting an offer in compromise can’t qualify for a payment plan, the agency’s site says.
Compared with some states, Georgia is pretty flexible, said Eric Santos, executive director of the North Georgia Low Income Taxpayer Clinic. When it comes to payment-plan terms, he said, “they’re usually willing to work with you.” Department of Revenue staff are also easy to get on the phone, he’s found, which is not true of the IRS.
But the state is less consistent than the IRS in how offers in compromise are handled, Santos said.
“I’ve found if a client fits within the minimum-ability-to-pay guidelines with the IRS, I’ve almost never had trouble getting them an offer,” he said. Meanwhile, “I’ve had the Georgia Department of Revenue come back to me even when a person very clearly qualifies for an offer in compromise under their regulations and say, ‘Yeah, we feel they can pay more.’ … They see an offer in compromise as very discretionary in a way that the IRS agents don’t.”
Hawaii
The state Department of Taxation told us it has no non-collectible status or other policy allowing people experiencing financial hardship to defer payment, unlike the IRS.
But the agency’s website says you can enter into a payment plan to give you more time to pay back the debt. To avoid having the state file a tax lien against you, you will generally need to finish paying within three years.
The state also says on its site that if a payment plan won’t work for your situation, you can request an offer in compromise to settle the debt for less than the full amount.
Applicants for an offer in compromise must pay upfront — at least 20% of the proposed amount if it’s a lump-sum offer, or the amount of the first installment if not. But the agency said it “may waive these payment requirements for individuals who meet the low income certification guidelines published by the IRS.” (This IRS page notes those guidelines.)
Idaho
Idaho’s State Tax Commission can settle tax, penalties or interest for less than the full amount, often referred to nationwide as an offer in compromise. Taxpayers must demonstrate hardship “through interview statements and comprehensive financial statements,” the agency told us. (This document offers a few details under “settlements.”)
The agency says on its website that it also offers payment plans to repay debt in installments. It warns that there are “strict requirements” and not everyone will qualify. It has one-year and two-year options; the agency might file a lien against taxpayers in the longer plan.
Illinois
The state Department of Revenue told us that its most commonly used option for taxpayers in hardship is an installment plan to pay back the debt over time. “We rely on the taxpayer to present the facts surrounding their current financial situation,” the agency said in its answer. “Each case can be unique and involves a hierarchy of reviews/approvals depending on the tax amount owed and the taxpayer’s request.”
The monthly amount and length of time for the repayment is based on each applicant’s financial situation, the agency said on its website.
To make an offer in compromise asking the state to settle the debt for less than the full amount, taxpayers must file a petition with the agency’s Board of Appeals and make their case to an administrative law judge.
Indiana
The state Department of Revenue told us that people “may be able to set up a payment plan” through its website. On its site, it says the length of time for such plans depends on the amount owed, with the maximum set at three years for debts of more than $5,000.
The agency also pointed people in hardship to its Taxpayer Advocate Office. The office’s webpage says staff there can assist with hardship payment plans and getting a temporary hold placed on your account when you need more time to start that repayment. Recent unemployment, a natural disaster or serious illness in the family are examples the state offers as potentially qualifying someone for its hardship program.
The advocate office can also assist with offers in compromise, a process to settle tax debt for less than the full amount.
Iowa
The state Department of Revenue told us it can accept offers in compromise to settle tax debt for less than the full amount. The program requires applicants to pay upfront the amount they’re proposing.
“A similar offer in compromise that was approved by the IRS may or may not be approved by the Iowa Department of Revenue,” it warns on its website.
The agency also notes on its site that its payment plans allow people to stretch out repayment in installments for up to three years.
Kansas
The state did not respond to our collection-practices survey. But the Department of Revenue’s website notes that it offers a payment plan for repaying tax debt in installments. The agency warns that it will in some cases file a tax warrant against people accepted into the plan to protect its ability to collect.
The agency’s site also outlines an offer-in-compromise program called “petition for abatement.” There’s a $50 application fee that could be waived or refunded for people “found to be completely insolvent.” (The IRS definition of the word is that your debts exceed your assets.)
Moe, the Kansas Legal Services staff attorney, said the state’s petition for abatement process is similar to the IRS offer in compromise.
Kansas, he noted, has a Taxpayer Assistance Center that can help residents with tax issues and provide clarity about how much is owed and for what period. “They’re a great resource,” he said.
Kentucky
The state did not respond to our collection-practices survey. But the Department of Revenue’s website says it has an “offer in settlement” program for settling tax debt for less than the full amount. The application form the state links to specifies that a $500 nonrefundable deposit is required at the point of application and that taxpayers cannot be in the midst of bankruptcy proceedings.
The state’s site also outlines a payment plan for repaying tax debt in installments. It says the maximum period for such a plan is two years but that taxpayers can call the agency to try to negotiate different terms. The state warns that it might file a tax lien against people in payment plans.
Louisiana
The state Department of Revenue told us that taxpayers can apply to repay in installments, spread over six months at minimum and three years at maximum. The state requires a 20% down payment.
Louisiana has an offer-in-compromise program to settle tax debt for less than the full amount. But the Low Income Taxpayer Clinic at Southeast Louisiana Legal Services told us that offers are rarely accepted.
A Department of Revenue report said it approved 24 offers for individual income tax in the 2022 fiscal year; it did not report how many it turned down.
For context, Louisiana suspended driver’s licenses roughly 5,000 times in calendar year 2022 as a result of failure to pay tax. That’s a lot of potential hardship cases compared with the number of successful offers.
Maine
Maine Revenue Services told us it has no non-collectible status or other policy allowing people experiencing financial hardship to defer payment, unlike the IRS. But on its website, the agency says it can accept an offer in compromise to reduce tax debt for less than the full amount.
It also said on its site that it offers payment plans. A presentation on its site mentions that a down payment is “requested.” A video the agency posted in March 2023 about how to request a plan on its online portal says 12 installment payments are the maximum allowed there.
Maryland
The Maryland Comptroller’s Office told us it has a low-income hardship program. Taxpayers qualify if their income for the current year is less than twice the federal poverty level or their total income is from Social Security and/or a pension.
The state also has an offer-in-compromise program that taxpayers in hardship can become eligible for two years after the tax was first due, the agency said. You cannot be in bankruptcy proceedings when you apply. “The taxpayer must be unlikely to be able to make payment in full anytime in the foreseeable future due to their financial situation,” the state added.
Additionally, the agency said, the state may waive interest and penalties “for reasonable cause.”
On its website, the state notes that it offers payment plans, though it does not outline the terms there.
Beverly Winstead, director of the University of Maryland’s Low Income Taxpayer Clinic, said a lack of clear policies online is a problem.
“It makes it harder to know your rights and options,” she said. “It also tends to aid in inconsistent answers.”
The Comptroller’s Office told us that it wants to be flexible to help taxpayers who may not qualify under stricter criteria. It also said it’s updating its website to share information more effectively and encourages taxpayers who are struggling to reach out.
“For those taxpayers who are experiencing challenges paying their tax debts, our dedicated and knowledgeable collections agents within the Office of the Comptroller work with them to bring resolution to settle their tax debts, often for less than they owe, based on their ability to pay,” the agency said in an email.
In the coming fiscal year, the agency said it’s looking to increase its “outreach and capability to help individuals needing our assistance.” Maryland taxpayers facing hardship can email lowincomeprogram@marylandtaxes.gov.
Massachusetts
The state Department of Revenue sent a link to its administrative procedures rather than answering our questions about hardship assistance.
The state’s procedures outline the existence of a payment plan but not the maximum amount of time that installment payments can be stretched out. The department does specify that a down payment “is usually required” and that the state may file a lien.
It also notes a program allowing taxpayers to “apply for relief due to significant hardship.” The relief temporarily halts collections that would extract savings from bank accounts or garnish wages, and it could restore access to licenses suspended or not eligible for renewal because of the tax situation.
The procedures do not mention an option to settle tax for less than the full amount, but elsewhere on the agency’s site, it clarifies that it does have an offer-in-compromise program. When making an offer, a taxpayer must pay 20% upfront or what would be the first installment in a repayment plan of no more than two years.
The agency explains on the page what it considers the minimum offer amount: a figure equal to the “net equity of the taxpayer’s current assets, plus a projected amount that could be collected from the taxpayer’s future income.” It can’t be less than $5,000, the agency said on that page, nor will staff usually approve an amount less than half the underlying tax liability.
Michigan
The state’s Department of Treasury told us that the agency has an offer-in-compromise process for settling tax debt for less than the full amount. The agency has detailed guidelines on its website, which include a requirement for a 20% initial payment when taxpayers apply for such assistance (or $100, whichever is larger).
The state also says on its website that it offers payment plans that spread out repayment of tax debt through installments. The standard term is a maximum of two years, but you can call the agency to ask for a longer period. The Department of Treasury warns that it will file a lien against taxpayers in payment plans to protect its ability to collect.
Minnesota
The state Department of Revenue told us that it doesn’t have a non-collectible status as the IRS does, but it can temporarily suspend collections actions against taxpayers in hardship. Penalties and interest will continue to mount during that period.
When determining hardship, the state considers inability to pay for basic necessities, including housing, electricity, heat, food, necessary medication and water.
The agency’s website also notes that it has an offer-in-compromise program that can settle tax debts for less than the full amount. You must pay $250 when you apply, but you can request to have the fee waived if you’re unable to pay for necessities or have income less than twice the federal poverty level.
The website also notes it offers payment plans for repaying debt in installments. The state warns that it can continue collections activities against taxpayers in such plans, including filing a lien.
The state has a Taxpayer Rights Advocate Office that can assist with hardship situations. “If you’ve received help from the Taxpayer Rights Advocate Office for a significant financial hardship in the past, we may not be able to grant another request,” the office’s page notes.
Mississippi
The state’s Department of Revenue told us that it can settle tax debt for less than the full amount through its offer-in-compromise program. Its instructions for individuals ask taxpayers to document, with at least two denials from financial institutions, that they cannot borrow to pay off any of the tax debt.
A payment plan application form on the agency’s website, last updated in 2021, said the debt must be paid off over 12 installments for amounts of $3,000 or less. For larger amounts, taxpayers who received permission from the IRS to pay in installments can enter into a state payment plan of up to five years.
Taxpayers are not eligible for repaying on installment if they were in the state’s payment plan within the past five years, the form says.
Missouri
The state did not respond to our collection-practices survey. But the Department of Revenue has some details about its policies online.
Taxpayers can apply for a hardship modification, which can reduce the amount of wages the state garnishes “or allow a release of the garnishment in exchange for an installment agreement.”
The state offers payment plans, but it doesn’t include details on that page about the terms, such as maximum length of time.
The agency can also consider settling debts for less than the full amount through an offer in compromise “after all other payment options have been exhausted.” Taxpayers do not have to make an upfront payment when they apply for an offer in compromise, the agency’s website says.
But the state’s offer-in-compromise program doesn’t provide much help for people in hardship, attorneys say. Sarah Narkiewicz, the associate dean for clinical education at the Washington University School of Law and director of its Low Income Taxpayer Clinic, said her organization has successfully negotiated a lot of $1 offers with the IRS for cases of extreme hardship but never an offer with the state “that resulted in a substantial reduction in the amount of tax owed.”
“They generally will not compromise,” she said. “There is an offer-in-compromise form, but they’re nothing like the federal government.”
The state’s payment plans are also not as flexible as the IRS’s, said Lee A. Moore, director of the Kansas City Tax Clinic at the University of Missouri-Kansas City’s School of Law. One bright spot: Department of Revenue staff will get on the phone with taxpayers to help them apply.
“It’s not that hard for our clients to call and get something set up,” he said. “May be very hard to pay, but not that hard to set it up.”
Montana
The state’s Department of Revenue told us that taxpayers in hardship can apply to defer individual income tax payments. You must provide financial documents showing an inability to pay, with reviews every six to 12 months and the possibility of a permanent holding status.
The agency’s website says it offers payment plans, but it doesn’t include details about the terms, such as maximum length of time. The state also has an Office of Taxpayer Assistance that helps people who can’t resolve their issues with the agency.
The state didn’t mention having an offer-in-compromise program that can settle debt for less than the full amount, nor could we find such an option on the agency’s site.
Nebraska
After at first declining to answer our questions, the state’s Department of Revenue did eventually confirm that it can consider offers in compromise to settle tax debt for less than the full amount. Its website notes that it can only do so “if the taxpayer is not disputing the tax, interest, penalties, and costs involved and is not currently in a bankruptcy proceeding.”
The state also offers payment plans; the balance must be paid off within two years, according to its site.
Legal Aid of Nebraska’s Tax Law Project said the state doesn’t have a formal application process for offers in compromise. (The agency says that’s true, though it has a form called FHRIND-NE — Financial Hardship Request for Individuals — that’s available on request.) Getting an offer accepted is extremely hard, said Shailana Dunn-Wall, an attorney with the Tax Law Project.
“Our clinic has successfully gotten Offers in Compromise for two clients in the past five years,” Dunn-Wall said in an email. “Both times the facts were striking (clients with extreme hardships and no practical likelihood of ever paying off the debt).”
Unlike the IRS, the state doesn’t have a “currently not collectible” status for hardship cases. The agency said that “each account is reviewed on its own merit and each person’s situation is looked at for options for reduced or lower payment amounts.”
Nevada
Not applicable; no individual income tax.
New Hampshire
Not applicable; no individual income tax (beyond an interest and dividend income tax, which is being phased out).
New Jersey
The Department of Treasury’s Division of Taxation in New Jersey told us that it doesn’t have a non-collectible status for people in hardship, unlike the IRS.
The agency does offer payment plans. Typically, such plans allow repayment to be handled in installments over three years maximum, the state said, though its website says it can approve plans that last for six. The agency might seek a judgment against you, which can allow them to take actions such as placing a lien on your vehicle or taking money from your bank account.
On its website, the agency also describes a “Closing Agreement” process that’s a type of offer in compromise, where a taxpayer can request the state settle the debt for less than the full amount. The agency told us that this program can result in “reduced interest, and under certain circumstances, modified tax.”
New Mexico
The state Taxation and Revenue Department told us that it doesn’t have a non-collectible status for people in hardship, unlike the IRS. But the state does have a hardship application for full or partial deferral of collections for up to one year.
A taxpayer can get a payment plan that spreads out repayment in installments for up to six years, but the state may file a lien for plans of more than a year.
The agency does not have an offer-in-compromise program to settle tax debt for less than the full amount. The only compromise option is for cases “where the amount is in dispute and there’s good-faith doubt about what is owed,” the agency said.
New York
The state Department of Taxation and Finance declined to answer our questions. But on its website, it says it offers installment payment plans for people in hardship. For debts of no more than $20,000 that you plan to pay off in three years or less, you can request a plan online. Otherwise, you’ll need to call the agency to set something up.
The agency will also consider settling debts for less than the full amount through its offer-in-compromise process. Taxpayers in such cases must be “severely financially distressed,” the agency said on its site.
Robert Nassau, director of the Low Income Taxpayer Clinic at Syracuse University, told us that the agency is “a lot more aggressive than the federal government” when dealing with taxpayers in hardship.
North Carolina
The state Department of Revenue told us it can settle tax debts for less than the full amount through an offer in compromise. State code says hardship situations could include a taxpayer who is insolvent (the IRS definition of the word is that your debts exceed your assets), has received an offer in compromise from the IRS or has demonstrated that paying a higher amount “would produce an unjust result.”
A 20% down payment requirement can be waived for very low-income residents, the state said on its website.
The state also says on its website that it offers installment payment plans. It may still file a lien against a taxpayer in such a plan “to protect the State’s interest.” The agreement must be 12 or fewer monthly installments or at least 7.5% of your wages, salary or federal adjusted gross income.
Gabrielle Paschall Trott, director of the Low Income Taxpayer Clinic at Pisgah Legal Services in North Carolina, said the state is quick to garnish wages or levy bank accounts. When a taxpayer ends up in collections, the state will add a 20% “collection assistance fee” on top of earlier penalties and interest that come with late payment, Trott added.
The agency’s website says that allows it to pass collections costs on to delinquent taxpayers. But “20% is really high,” Trott said. And the state doesn’t have a key hardship protection offered by the IRS.
“If you’re living in poverty struggling to make ends meet, you can get put into [currently not collectable] status where the debt doesn’t go away but the IRS doesn’t pursue it,” Trott said. “The state doesn’t offer anything like that.”
North Dakota
North Dakota’s Office of State Tax Commissioner told us that if the IRS approves an offer in compromise, which settles tax debt for less than the full amount, the state can follow suit.
“We offer payment plans and could work out a settlement based on waiving some penalty/interest, but do not have the ability to eliminate the actual tax portion of the debt,” the agency added.
The state considers factors such as the taxpayer’s health, housing situation and employment when determining hardship.
It gives contact information on its website for setting up payment plans, but that page doesn’t include details about the terms, such as the length of time such plans can last.
“We certainly try to be reasonable and take into account financial hardship that may be occurring with that taxpayer,” North Dakota Tax Commissioner Brian Kroshus told us. “We want to ensure that they can meet their basic living needs. Our goal is to assist taxpayers to get through the financial difficulties, recognizing that the tax obligation does not go away.”
Ohio
The state’s Department of Taxation told us that the Ohio Attorney General’s Office handles tax hardship situations. For instance, the taxation agency isn’t authorized to set up payment plans, but the Attorney General’s Office said it can do so.
The attorney general’s website outlines its offer-in-compromise process for settling tax debt for less than the full amount.
Asked if the state has a currently not collectible status like the IRS for cases of severe hardship, the Attorney General’s Office gave us this answer: “While we do not function exactly like the IRS in this regard, we do allow applications for economic hardship as set forth on our website.”
Oklahoma
The state Tax Commission told us it offers payment plans “with a range of terms to extend payment.”
The agency has an offer-in-compromise program outlined in this packet. The process, which the state calls “Settlement of Tax Liability,” can settle tax debt for less than the full amount.
Taxpayers can also request a waiver of penalties and interest.
The agency’s website offers few details about the terms of the payment plans and waiver process.
Oregon
The state Department of Revenue told us it offers two options for taxpayers in hardship to stop or reduce collections efforts against them:
- “Suspended collections status,” for low-income residents with hardly any assets and certain types of income, such as Social Security payments.
- “Temporary uncollectible status,” a collections pause for taxpayers experiencing temporary hardship.
Both halt wage garnishment and bank levies, but the state may still file a lien on property.
The state offers installment plans that can stretch repayment over a period of up to three years, its website says. (The agency has instructions on that page for people in need of a longer repayment schedule.)
The agency also notes on its website that it lets residents request that some or all of the penalties be waived. It has a type of offer in compromise it calls “settlement offers,” which allow for tax debt to be settled for less than the full amount; if accepted, an offer must be paid in full within 30 days or through installments over one year.
Robin Maxey, the Department of Revenue’s spokesman, said the agency “considers the taxpayer’s ability to pay when providing taxpayers options to pay their debt.”
“Even taxpayers who have not initially responded to the department’s efforts to contact them and have therefore been garnished, have the option of applying for a modification of the garnishment amount to lower the amount withheld from each paycheck,” Maxey said by email.
Pennsylvania
The state Department of Revenue told us it will pause collections efforts against taxpayers in hardship who can provide “verifiable documentation to support the hardship claim.”
“The Department may keep the case in an active collection status but place a hold on collections actions,” the agency said. “The Department may also place the case in a bad debt status.”
The agency offers payment plans that, according to its site, offer standard terms of less than 12 months for repayment; taxpayers can contact the agency to ask for a longer timeline. The state’s site also lists an offer-in-compromise process to settle the debt for less than the full amount, with the form available here.
Rhode Island
The Division of Taxation at the Rhode Island Department of Revenue told us that it doesn’t have a non-collectible status to pause collections activities against people unable to pay, unlike the IRS.
It does have payment plans for repaying on installment. We couldn’t find details about the terms, such as the length of time allowed, on the agency’s site.
The agency will also consider offers in compromise to settle tax debts for less than the full amount.
The agency said acceptance into either option is handled “on a case-by-case basis with a review of all circumstances, including financials, income, and expenses.”
The agency’s website also says it offers penalty waivers in “certain rare scenarios” for hardship when a taxpayer is otherwise able to pay the tax and interest in full.
South Carolina
The state Department of Revenue told us it has no non-collectible status or other policy allowing people experiencing financial hardship to defer payment, unlike the IRS.
The agency’s website says it does offer payment plans for people who are not having income garnished or assets levied as a result of their tax debt. Its application form details the timeline for installment payments as one to four years, depending on the amount owed, and warns that it may file a lien against people in payment plans.
The agency will also consider offers in compromise to settle debt for less than the full amount, it says on its site.
South Dakota
Not applicable; no individual income tax.
Tennessee
Not applicable; no individual income tax.
Texas
Not applicable; no individual income tax.
Utah
The Utah State Tax Commission told us that taxpayers in hardship can request “a waiver or reduction of penalties or interest under reasonable cause,” covered in this publication.
The reasonable causes outlined in the publication don’t include general financial hardship; among the items on the list are death, natural disaster and unobtainable records. However, the agency said it “may consider such requests on a case-by-case basis, taking into account the circumstances that have led to the financial hardship.”
The agency’s website also notes that the state will consider offers in compromise to settle tax debt for less than the full amount, and that payment plans are available for people to repay debt in installments. In this application form for a payment plan, the state advises, “Your payment should be large enough to pay off the tax due, penalty and interest within 24 months.”
Vermont
The state Department of Taxes told us that it has a policy allowing people experiencing financial hardship to defer individual income tax payments. Its temporary hardship status lasts six months. The agency said it also has an “uncollectible status,” similar to the IRS.
On its website, the agency said it has payment plans for people who need to spread their payments out — “your payment plan will be based on a variety of factors specific to you and your situation,” the agency said regarding the terms.
The state also will consider offers in compromise to settle debt for less than the full amount.
Virginia
The state Department of Taxation told us it has an offer-in-compromise program for people in hardship to settle their tax debt for less than the full amount.
The agency notes on its website that it has payment plans that can stretch repayment out for up to five years.
Nancy Rossner, executive director at The Community Tax Law Project, noted that if Virginia does garnish your wages, you can ask the state to reduce it in cases of hardship.
Washington state
Not applicable; no individual income tax (it does, however, tax capital gains).
Washington, D.C.
The Office of Tax and Revenue told us that it can, on a case-by-case basis, allow a temporary suspension of collections because of financial hardship. Examples could include “recent unemployment, impact to Social Security payments, incarceration, excessive medical bills,” the agency said.
On its website, the agency notes that it has an offer-in-compromise process that can settle tax debt for less than the full amount.
The agency also has a payment plan for repaying on installment. It warns on its site that it may file a lien against people in payment plans, and it says that installments that last more than two years or involve more than $5,000 in debt require additional documentation.
West Virginia
The state Department of Revenue’s Tax Division told us it doesn’t have a non-collectible status to pause collections activities against people unable to pay, unlike the IRS.
But it said it does offer installment plans for repaying debt if someone’s personal circumstances warrant it.
Its website notes that a standard payment plan lasts six months; longer than that, and the state will file a lien to protect its ability to collect. The site also notes that the state will consider offers in compromise to settle tax debt for less than the full amount.
“In fairness to all Taxpayers, every Taxpayer must meet the obligation to pay State taxes lawfully due,” the agency told us. “However, if a levy, garnishment or seizure of assets would create immediate economic hardship for a delinquent Taxpayer, the Tax Division will work with the Taxpayer to find reasonable means for the tax debt to be paid.”
Wisconsin
The state Department of Revenue told us that state law allows for “compromise either through a payment plan or by providing evidence of an inability to pay now or in the future.”
Its website notes its offer-in-compromise program, which can settle debt for less than the full amount. Its site also offers a few details about its payment plans, noting that it may issue a tax warrant — a property lien — to secure the debt but won’t take other collections actions against people paying on time through a plan.
Wyoming
Not applicable; no individual income tax.
Public Integrity journalists Ashley Clarke and Joe Yerardi also contributed to this story.