California taxpayers have several options when it comes to repaying past-due tax debt. If you cannot pay your state taxes, you should work with the state Franchise Tax Board (FTB) to arrange a California tax payment plan, ask for an extension, or make an offer to settle your tax debt. A qualified tax professional can help you explore available options to resolve your California tax issues.
California taxpayers can easily qualify for a payment plan if they owe less than $25,000 and can repay the total, including interest and penalties, within 60 months. If you owe more than $10,000 or need longer than 36 months to completely pay the balance, you must provide documentation to prove that you are currently experiencing financial hardship.
When you enroll in a California tax payment plan, you may be subject to a state tax lien. The FTB files a public record that gives them claim to your assets. This can negatively affect your credit, making it difficult to qualify for mortgages and other loans. In some cases, you can request to have the lien removed if you have made payments as agreed and you will pay off the debt in less than three years.
If you are paying your taxes by installment agreement, all future state and federal tax refunds will be applied to your balance until it is fully repaid. You are not eligible for this program if your account is currently subject to an Order to Withhold, Continuous Order to Withhold, or an Earnings Withholding Order for Taxes.
You have several ways to apply for a California tax payment plan:
An application fee of $34 will be added to your tax balance when you request an installment agreement. If your request is accepted, you will receive a notice with your monthly payment due date and amount. Failure to make this initial payment within 30 days will result in termination of your installment agreement, and you will face subsequent collections by the FTB.
If the FTB does not accept your request for a payment plan, you will receive a notice in the mail with information about the decision. You can request an independent administrative review of this decision in writing within 30 days of receiving the notice or make other arrangements to pay your balance to avoid collections.
If you cannot afford to pay your tax debt and do not realistically expect your financial situation to change, the FTB may agree to settle for only a percentage of your balance. This is known as an offer in compromise (OIC). For example, you may be retired, living on disability, have a fixed income, or own limited assets. If you are unable to pay because of temporary job loss, this may not be the best option for your situation.
Like the IRS, the FTB uses your reasonable collection potential to determine the lowest offer they will accept. This amount must be the most the agency can expect to collect from you before the statute of limitations on your state tax debt expires.
When determining whether to accept an offer in compromise, the state will look at your comprehensive financial picture including any assets or property you own, your current income and potential for future income, your monthly expenses, and whether your finances are likely to improve in a year or several years.
Like the IRS, the FTB does not attempt to collect taxes from individuals that have documented financial hardship. You must provide information about your assets, expenses, and income. If you meet the state qualifications, the collection of your debt may be postponed for one year, after which time you must submit new financial documentation.
If you do not make arrangements to repay your taxes, the state will issue a lien. This public record, which lasts for 10 years, gives the state a claim over your property. If you do not take action once a lien has been filed, your wages, accounts, real estate, and vehicles can be seized to satisfy your tax debt.
Even if you can’t pay your state tax debt, it’s important to communicate with the FTB. Ignoring your tax notices will result in accumulating interest and penalties as well as the eventual seizure of assets you own.
If you are unable to resolve your state tax debt issues, you can seek assistance from the Taxpayers’ Rights Advocate’s Office. This agency will conduct an independent review of your tax situation, make recommendations, and answer any questions you have about California state income tax. To get started, call 1-800-883-5910 or write to Executive Liaison Section MS A381, Franchise Tax Board, P.O. Box 157, Rancho Cordova, CA 95741-0157.
For basic questions, such as checking your balance due, confirming that your payment was received, and ordering tax forms, you can call 1-800-338-0505. This automated touch-tone system is available 24 hours a day, seven days a week. In-person help is available at taxpayer service centers in Los Angeles, Oakland, Sacramento, Santa Ana, San Diego, and San Francisco.
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