California, and other states, standardly use a few methods to collect delinquent tax debts. They primarily use:
- Wage garnishments
- Bank Levies
- Liens on Property
- Seizure of tax refunds due to the tax debtor
If you owe taxes in California and are not able to pay the entire amount due immediately, you should look into setting up a long-term payment plan. Visit the Installment Agreement - Individuals page to learn the terms and conditions that the State of California require. The basic requirements appear reasonable:
- Owe a balance of $25,000 or less.
- Agree to pay your account in 60 months or less.
- Have filed all required personal income tax returns.
Contact the California Franchise Tax Board at the Web page linked to above or call (800) 689-4776, during business hours, to learn more.
Not Collectible Status
If you are unable to commit to a monthly payment plan, speak to the CA FTB about "not collectible status." Not collectible status is granted temporarily if can prove a financial hardship. The debt continues to grow with interest and penalties, but your wage and bank accounts will NOT be garnished. Tax debts in California generally have a 20 year statute of limitations from the time that they are assessed. After 20 years, your responsibility to pay the tax debt expires. In some cases, certain actions lead to collection stays that suspend or extend the 20-year SOL.
If you are unable to pay, there are two options to consider aside from not collectible status. California has a tax settlement program, the Offer in Compromise, that allows some taxpayers who lack the income and assets to pay off the debt to settle the debt for less than is owed.
Options to Reduce or Not Pay the Debt
Depending on how old your tax debt is and when you filed your returns, you may be able to legally discharge your responsibility to pay the taxes by filing for bankruptcy. The general rule for including California tax debt in a Chapter 7 bankruptcy, which wipes out your debt, is that the taxes must be due for three years, the return must be filed for at least two years, and the assessment has to have been in place for 240 days. Tax debt can be included in a Chapter 13 repayment plan, no matter how old or recent it is.
Lastly, any time a person is subject to a bank levy, it is smart to not keep a lot of money in the bank. A bank levy can hit at any time and the authority to levy the account is ongoing. That means you can be levied over and over again, until the debt is paid. If you have a bank levy and are paid by direct deposit, either see if you can get your employer to switch to a paper check or pull the funds out immediately after they are deposited.
I hope this information helps you Find. Learn & Save.