How to Handle a California State Tax Lien

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Alexandra Tapp
Alexandra Tapp
March 06, 2019

  • If you live or work in California and do not pay your state taxes on time and in full, the state can place a lien against your property or business, claiming legal rights to it until you’ve paid your debt.
  • Options for having a lien against you lifted, depending on the circumstances, include paying your tax debt entirely, paying in monthly installments, applying for an offer in compromise, or appealing the lien.
  • It’s important to take care of liens as soon as possible to avoid paying more in the long run, damaging your credit, having your possessions seized, having your bank account frozen, or getting your wages withheld.

California residents who do not pay their state taxes on time can be subject to tax liens. When this happens, the government stakes a legal claim to your property until you pay off your debt.

This scenario can have serious negative consequences on your credit and finances. So if you find yourself struggling to settle tax debt, don’t ignore the problem. Here’s how to handle, or even prevent, a state tax lien in California.

What Is a California State Tax Lien?

If you fail to pay your state taxes, California’s Franchise Tax Board will send you a collections notice stating how much you owe and the deadline for paying that amount. If you do not pay your tax debt within 30 days of receiving this letter, the state can file a lien against your property.

How to Handle a California State Tax Lien

The Franchise Tax Board records liens through your county’s recording office as well as the California Secretary of State. At this point, the tax lien against you becomes public.

A California state tax lien lasts for 10 years, and it can be extended two times for a maximum of 30 years. As long as you have a lien on your property, you cannot sell it.

What Happens If You Don’t Pay Your Taxes?

If you fall into tax debt and end up with a lien against your property, don’t ignore it. The repercussions for continuing to be in debt to the state government include the following:

  • Paying more in the long-run. As long as you’re in debt, you’re racking up more late fees, interest, and tax penalties. Over time, these can be significant.
  • Poor credit. A lien can send your credit score plunging and hinder your ability to get future funding.
  • Having your possessions seized. To cover an outstanding debt, the Franchise Tax Board has the ability to seize and sell your assets, including your home.
  • Having your bank account frozen. Similarly, the Franchise Tax Board can issue a bank levy to take funds from your account to pay off your debt.
  • Garnished wages. The Franchise Tax Board might require your employer to withhold up to 25 percent of your earnings.

How to Settle a Tax Lien

Having a lien released seems straightforward: Simply pay the state what you owe. However, if you’re struggling financially, this can be extremely challenging.

Here are some of your options for having a lien removed:

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  • Pay your full tax debt. This includes not only the amount of owed taxes but also any fees or interest you’ve accrued.
  • Pay your tax debt in installments. If you’re struggling financially, the Franchise Tax Board might allow you to pay off your debt through a monthly payment plan. You must first file any outstanding tax returns and fill out the appropriate request form. If you qualify, the tax board will halt any further collections.
  • Apply for an offer in compromise. If you cannot pay your debt now or in the foreseeable future, you might be eligible for an offer in compromise. In this scenario, the government allows you to pay off your tax debt for less than the full amount. To qualify, you must fill out the appropriate forms and provide documentation to prove your financial situation.
  • Appeal the lien. If you can prove that the Franchise Tax Board has issued a lien against you by mistake, contact the agency right away to initiate an investigation. You must prove this error within 30 days.

Once you’ve satisfied the lien, the Franchise Tax Board will send a release document to your county’s recording office and the California Secretary of State within 40 days.

State Tax Liens on Businesses

California businesses are also vulnerable to tax liens if they don’t pay their state and payroll taxes. In this scenario, the lien then gets placed on your company and its assets. During this time, you cannot sell or refinance the business or its property. The California Employment Development Department is the entity responsible for collecting state employment taxes and issuing liens against businesses. The Employment Development Department cannot, however, seize the company’s assets.

Similar to the process for a personal tax lien, your company will first receive notification of its delinquent taxes and the deadline for paying them off to avoid a lien. This notice is called an Employer Account Statement. You can contact the Employment Development Department to appeal the amount you owe or try to come up with a solution if you cannot afford to pay the full amount. Do not ignore this statement, as doing so can lead to having a lien issued against your company.

Once you’ve paid off your business’s debt and any accompanying fees, the state will send a release for your lien to the county recording office within 40 days. If you want a copy of this release document, you must request and pay for it yourself. Even after you’ve paid your debt and the lien has been released, however, it will stay on your business’s credit report for seven years.

If you’re struggling to pay your tax debt and fear the state will issue a lien against your property (or already has), don’t panic. You can take several steps to find relief without irreparably harming your credit or resorting to bankruptcy. Our experts at Solvable can help you on the right path toward debt relief.

 

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