Statute of Limitations on NY State Tax Debt—How Long Can They Collect?

After state taxes have been assessed, the Department of Taxation and Finance (DTF) can only collect taxes for a set period of time. In New York State, the statute of limitations is generally 20 years. However, there are exceptions, and the starting point for the 20 years depends on the specific details of your tax situation.

This limit differs for each state, and as a New York resident, it’s important to understand your obligations and how long the state can pursue you for back taxes.

Key Takeaways

• While the IRS only has 10 years to collect tax debt, New York State has 20 years to collect tax debt.
• The 20-year window starts on the date when the state could first issue a tax warrant.
• If you do not handle your tax debt, the NY DTF may use tax warrants, levies, and asset seizures to collect what you owe.

New York State’s General Statute of Limitations

Under New York tax law, the DTF can collect taxes for 20 years from the first date when a warrant could have been filed. This date changes based on whether or not the taxpayer has a right to a hearing. If there is no right to a hearing regarding the tax notice and demand, the first date on which a warrant could be filed is the day after the last day listed in the notice. If there is a right to a hearing, the first date for a warrant is the day after the option to apply for a hearing has passed.

New York State vs. Federal Taxes

In general, there’s often a lot of overlap between state and federal tax law. For example, there are often similar payment plan options, settlement options, and penalties. However, there is a significant difference between New York’s statute of limitations on collections and the IRS’s statute of limitations.

The IRS only has 10 years from the date that tax is assessed to collect it. If you’re struggling with both state and federal tax debt, you could be on the hook for your state tax debt for much longer than you’re obligated to pay a federal tax debt.

Exceptions to the Statute of Limitations

There are some circumstances that may pause the statute of limitations and give the Department extra time to collect your past-due taxes. First, if both parties agree to an extended collection time frame, the DTF is free to collect beyond the 20-year period.

When a taxpayer’s offer in compromise is approved, they waive statute-of-limitations defenses regarding the tax debt for which they are requesting an offer in compromise. This means that even if a statute of limitations defense may apply, taxpayers waive their right to use it by applying.

Bankruptcy may also pause the statute of limitations—while the bankruptcy is in progress, there is an automatic stay that prevents creditors from seeking payment. But the extra time is added to the end of the collection period. If the tax debt is not discharged in bankruptcy, collection efforts may restart after the bankruptcy process is finished.

Is Your Tax Debt Still Collectible?

Through the NY DTF website, you may be able to find out if your tax debt is still collectible. The DTF’s Online Services section allows you to access your online account, where you can get information on your most recent tax returns. This resource also has information on notices you’ve received from the state, which will help you determine when the 20-year timer on your tax debt started.

You can also contact the DTF directly over the phone. Alternatively, you can hire a tax pro and they can obtain these details on your behalf once you authorize them to do so.

Tax Collection Efforts

If your tax debt is still collectible, the DTF has until the end of the 20-year window to collect. After sending out notices in an attempt to get you to pay voluntarily, they may move forward with a tax warrant. It’s a civil judgment against you that protects the state’s legal interest in your property. Essentially, it’s the New York State version of an IRS tax lien. It is attached to all of your assets.

Should the Department move forward with more aggressive collection efforts, they may levy your assets or recover money from those who owe you money. The NY DTF can also seize and sell your assets, and then use the proceeds to cover your tax debt. They generally start with your tax refund, which they use to offset your past-due taxes.

Income execution is another potential outcome. Should you refuse to pay your wages voluntarily, the DTF may order your employer to withhold 10% of your gross wages and send the collected amount to them. If you still owe taxes, the DTF may start to seize the money in your bank account or even the physical assets that you own.

Managing Your Tax Debt

Since the state has so many collection tools at its disposal, it is crucial to handle your tax debt as early as possible to avoid losing your assets or income. There are various programs that may be available to you, including the following.

Offer in Compromise

The state’s offer in compromise program is intended for financially distressed taxpayers who are facing overwhelming tax liabilities. They are open to offers from individuals and businesses who are insolvent or bankrupt, as well as individuals for whom full payment would cause undue economic hardship. After receiving your application, the state will go through your information in detail to determine whether or not accepting the offer is in the best interest of the state and other taxpayers.

Installment Payment Agreement

Like the IRS, the DTF allows taxpayers to pay off their debt over a number of monthly payments. In New York State, you can request an installment payment online if you owe $20,000 or less and can pay off your debt in 36 or fewer monthly payments. If you owe more or need more time to pay off your debt, you must negotiate with the DTF.

Frequently Asked Questions

Does New York forgive tax debt after 20 years?

After 20 years, New York no longer has the legal authority to continue collecting tax debt, so collection efforts stop.

Can New York State extend the statute of limitations on tax debt?

There are very limited circumstances under which the state can extend the collection statute of limitations. In most cases, all collection attempts must stop after 20 years.

How do I know when my NY tax debt will expire?

You can access your online tax account via the DTF’s website to look at tax notices and documentation. This documentation can help you calculate when your 20-year collection timeline ends.

What happens if I ignore my NY state tax debt?

The DTF will ramp up collection efforts, ranging from tax warrants and levies to asset seizures and wage garnishment.

Can NYS still collect my tax debt after the statute of limitations expires?

If you agree to an extension in writing, they can continue collecting on your tax debt, but otherwise, once the statute expires, the DTF cannot legally collect the tax debt.

If you’re struggling with New York State tax debt, it’s important to take action right away to avoid aggressive collection actions. The 20-year collection statute of limitations gives the state a lot more time than the IRS has, and waiting too long to address your tax debt could result in levies and asset seizures.

Talking to an attorney early in the process can help you avoid enforcement escalations and get your tax debt under control. Call Timothy S. Hart Law Group at 518-213-3445 or connect with us online to set up a time to meet with our team of tax professionals.