June 22, 2023 | Payment Plans
New York State Tax Payment PlanYou May Qualify to Pay Your Tax Debt in Monthly Installments
If you can’t afford to pay your New York state income or business taxes, you may be able to set up a payment plan. To help you figure out if you qualify, this post outlines the rules and application process. Then it explains what to expect when making payments on a state tax debt.
To get help now, contact us today. Based in New York State, the Timothy S. Hart Law Group has extensive experience helping taxpayers set up payment plans with the NY DTF. We can also closely review your situation to make sure this is the right solution for you.
What Is an NYS Installment Agreement?
A NYS payment plan is when you make monthly payments on your tax bill. Rather than paying your tax liability in a lump sum, you make installment payments over several years or months.
The NY DTF lets individuals set up payment plans on up to $20,000 in tax debt, and they can take up to three years to pay.
For example, say that you owe $1,000 and you can afford to pay $100 per month. Then, you simply need to apply for a payment plan and let the DTF know what you can afford. If accepted, you will pay off your tax bill in about 10 months.
Note that this is a simplified example. Interest and penalties will cause the process to take just a little longer than 10 months unless you increase your monthly payments to cover the interest.
What If You Need More Time or Owe More Than $20,000?
If you owe more than $20,000 or need more time to pay, you should apply for a payment plan in writing or by calling the revenue agency. You will also need to complete Form DT-5 (Statement of Financial Condition). This is a 10-page long form that requests extremely detailed information about your financial situation. The DTF uses this info to decide if you qualify for a payment plan.
The DTF website doesn’t include any firm details about payment plans for tax debts over this threshold, but historically, the state has accepted many payment plans that are for over $20,000 or more than 36 months.
How to Apply for a Payment Plan on New York State Back Taxes
You can apply online but only if you owe less than $20,000 and can pay everything off within 36 months. If not, you can apply by mailing a written request along with Form DT-5 to the department, or you can call the department directly for more guidance.
You cannot apply for a payment plan until you receive a bill. To explain, imagine that you file your New York State tax return and you know you can’t afford to pay the tax liability. Unfortunately, you can’t just set up a payment plan when you send in the return.
Instead, you need to file without payment and wait for a bill. Then, you can apply for an installment agreement. If you like, you can make payments while you wait for the NY DTF to generate a bill.
What Happens If the State Accepts Your Application
The state will notify you by mail if it accepts your application. Then, you will receive another notification about your first payment. If you selected manual payments, the letter will note the date you must mail or make a manual payment online.
If you set up automatic payments, you need to make your payments manually until you receive a confirmation of automatic payment deductions for your installment payment agreement. Once you receive this, the DTF will just withdraw your payments on the date you selected. If you have insufficient funds, the DTF may assess a $50 penalty. Then, it may automatically try to withdraw the payment a few days later, or it may send you a notice telling you to make a manual payment.
What If the State Rejects Your Application
You will also receive a mailed notice if the state rejects your payment plan request. In this case, you should try to find another way to take care of your tax bill before the state starts enforcing collection actions against you. If you’re not sure what to do, reach out for help.
What to Expect While You’re Making Payments
If you miss a payment, you have a month to rectify the situation. As long as you mail in your payment by the next month’s due date, the NY DTF won’t put you into default. For instance, if you miss a $100 payment due February 15, you must make a $200 payment by March 15 to stay in good standing.
Generally, if you file a state tax return that shows a refund, the DTF will probably keep the refund and apply it to your bill. If that happens, the refund does not take the place of your regularly scheduled payment. You still need to make the monthly payment.
Note that while you are allowed and encouraged to make extra payments, they don’t take the place of your regularly scheduled payments. For example, say that your monthly payment is $200 and you send in $400. That helps you reduce your tax bill, but it doesn’t cover the next month’s payment. You still must make a payment as usual.
Unfortunately, interest and penalties will continue to accrue on your account, even if you’re on a payment plan. However, you can generally avoid the worst of the penalties by setting up a payment plan.
Additionally, setting up a payment plan generally protects you from most collection actions. In some cases, the DTF may issue a tax lien to protect its interests until you complete the payment plan, but as long as you follow the terms of your agreement, you don’t have to worry about asset seizures, wage garnishments, or any other severe collection actions.
Payment Plan Rules
If you’re on an installment agreement, you must make all of your payments on time, but you also need to abide by the following rules:
- File all state tax returns on time.
- Pay the liability with all new state returns on time.
- Provide the DTF with financial details as requested.
If you break these rules, the DTF can rescind your payment agreement. Then, the agency can pursue collection actions such as tax warrants, wage garnishments, bank account levies, asset seizures, and more. You can also lose your driver’s license if you owe more than $10,000 in delinquent New York State taxes.
Alternatives to New York Tax Payment Plans
A payment plan tends to be the most popular option for people who get behind on their state taxes, but it’s not the only option. Consider the following:
If you can pay your bill in full within 60 days, you don’t need to apply for a payment plan. Instead, you should just contact the DTF and let them know that you need a one-time extension.
Offer in compromise
This lets you settle your tax bill for less than you owe. You must prove to the state that you can only afford to pay the offered amount. Generally, you should work with a tax pro if you want to take this route. You can get offers on IRS taxes and state taxes, but there’s a separate application process for each.
Only some tax debts can be discharged in bankruptcy cases. Talk with a bankruptcy attorney to see if your debts may qualify. Keep in mind that bankruptcy has very negative effects on your credit, and if you only owe tax debt, you most likely should explore other options.
Some people opt to take out loans or use credit cards to pay their taxes. To ensure you’re saving as much money as possible, compare the interest rates on the loan with the interest rates and penalties assessed by the DTF. Then, you’ll be able to find the most cost-effective option.
FAQs About NYS Payment Plans
Generally, you can select your own payment date. However, if you choose automatic payments, you can only choose between the 5th and the 15th. If you want to change your payment date for the month, you must sign into your online account and make the change by the 2nd of the month.
What if I receive a bill while I’m making payments?
The DTF occasionally sends balance-due notices to people who are on payment plans. This can be confusing because the bills often just demand payment, and they don’t acknowledge that you’re already making payments.
If this happens, double-check to make sure that tax liability is included in your payment plan. If you’re not sure, reach out to the state revenue agency or a New York tax professional.
What If I incur an additional tax liability while on a payment plan?
Incurring an additional tax liability doesn’t necessarily put you in breach of your payment plan, but it can be problematic. The NYS DTF says that if possible, you should pay off your existing payment plan, and then, request a new payment plan on the new tax liability.
If you want to modify your payment plan to include the new tax liability, you should reach out to the department directly. The DTF may be willing to update your payment plan, but that could lead to a tax warrant and/or larger monthly payments. You can call the DTF at (518) 457-5772, but to be on the safe side, you may want to work with a tax professional.
Can I get tax refunds if I’m on a payment plan?
The DTF website is unclear about this issue. It simply states that the state “may” keep your refund while you’re in an active payment agreement. If so, the refund will be applied to your tax debt. If it covers more than the balance due, the state will send you the change within about 60 days.
Generally, both states and the IRS keep tax refunds when people owe back taxes. This is true whether they are on a payment plan or not. However, there are exceptions to this rule. For instance, during the COVID pandemic, the IRS (and many states) didn’t keep tax refunds even if someone owed money.
How much do I owe on my NYS state payment plan?
If you want to know how much you still owe, you can create an online account and check your balance. Or you can call the DTF at (518) 457-5772 — make sure you have your taxpayer ID and assessment number. Note that payments may not show on your account until 10 days after you make them.
What if I owe taxes to the IRS and New York State?
Then, you need to request two different payment plans. You can request monthly payments from the IRS on your federal tax debt and payments from the DTF on your state tax debt.
If you owe more than $50,000, the IRS will require you to submit a financial disclosure. This allows the agency to decide whether or not you can afford to pay in full. When determining your required monthly payment, the IRS will consider state tax debt payments as part of your necessary expenses. Because of that, some people prefer to set up their state payment plans first. When you talk with a tax attorney, they will let you know the best strategy in your situation.
Get Help Applying for a Payment Plan
Before applying for a payment plan, you should talk with a tax attorney. They can review your situation and ensure that a payment plan is the right option. Depending on the situation, they may also be able to reduce how much you owe by applying for penalty abatement or amending old returns to correct mistakes.
To get help now, contact us at the Timothy S. Hart Law Group, P.C. today. We are committed to helping our clients deal with state and federal tax debt in the most efficient way possible. We don’t just work in New York. We can help you regardless of where you’re located.