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.
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.
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.
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:
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:
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.
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.