Your Options for NYS Tax Debt Relief
There are five main options when it comes to NYS tax debt relief. We will go through the options for dealing with tax debt and the New York State Tax Department. Not all of the options you have are relief, but it still resolves the tax debt. Watch our video below that covers the best option for most people and keep reading on for more in-depth information.
The most common options are:
- Offer in Compromise
- Hardship Status
- Payment Plan and a Penalty Abatement if possible
- Pay debt in full
- Do nothing, see what they get from you
If you owe less than $20,000 of state and IRS tax debts, you are often best off handling it yourself. If you owe more than $20,000 a tax attorney is recommended. Swift action is recommended regardless, especially if you already have an NYS tax warrant issued against you. Below we will go in detail.
New York State Offer in Compromise: The Best Type of NYS Tax Debt Relief
An Offer in Compromise is an agreement between a taxpayer and a taxing authority to settle a tax debt for less than the amount owed. New York State is one of the states that has an Offer in Compromise program. Many people are familiar with the IRS Offer in Compromise program due to ads everywhere claiming your tax debts can be settled for pennies on the dollar. Sometimes they can. Sometimes it is in fact a fraction of a penny on the dollar when it comes to the IRS.
The State of New York also accepts Offer in Compromises in pretty low amounts compared to the full tax debt. In our experience, the dollar-to-dollar collection ratio is higher from NYS vs. the IRS. We recently had an IRS case where they accepted $100 on $245,000 in debt. That rarely happens with NY State. Recently we had a case where a client owed about $37,000 to NYS, and it settled for about $7,000. Still plenty of savings, but not the same ratio as the IRS. See our guide on NYS Offer in Compromise for more information on this procedure.
NYS also clarifies that their decision on whether to approve an Offer in Compromise takes into account “undue economic hardship.” Some examples of factors tied to undue economic hardship that they give:
- long-term illness, medical condition, or disability
- obligations to dependents
- employment history
- natural disaster
- special educational expenses
- inability to liquidate assets
So it might be easier to qualify than one might at first think.
Does NYS Forgive Tax Debt or Offer Tax Forgiveness?
As we mention in our NYS Tax Warrant article, NYS does not do a straight-out forgiveness program. They do have a statute of limitations, which is 20 years as opposed to the IRS’ 10 years. When a tax debt expires, the statute of limitations is intended more to prevent the state from wasting resources on unrecoverable debt than to be a benevolent debt absolution program.
The closest thing you can get to NYS tax forgiveness is to make an Offer in Compromise, which can still settle the debt for a fraction of the original tax debt.
New York State Hardship Status: Temporary Relief
Hardship status is a form of NYS tax debt relief. The State agrees you are too broke to pay the bill, but for some reason, they will not accept an Offer in Compromise. Most people that would qualify for hardship also qualify for an Offer in Compromise. Here are some (but not all) situations where hardship may be the only option:
- You have a home with more equity than the tax debt but do not want to sell the home or cannot get to the equity.
- You applied for an Offer in Compromise but are young and get denied for that reason. NYS might want to wait longer to see if they can collect from you. The State is more patient than the IRS with a 20-year statute of limitations. For comparison, the IRS has 10 years. See our guide on collection statute expiration dates for more information.
- You applied for an Offer in Compromise but were denied for various reasons, but still do not make enough for a payment plan.
NYS does not have to accept a hardship status, but they often will when there is a hardship. I have noticed these are easier to get when in the regular collections area. Cases assigned to individual collectors are harder to get hardship status for. This is just another reason to take swift action on NYS tax debt.
Payment Plan: But Where is the NYS Tax Debt Relief? A Penalty Abatement If Possible
A payment plan is one of the most common resolutions for NYS tax debt. If you do not qualify for an Offer in Compromise or hardship but are not able to pay the debt in full, a payment plan is the best option. It keeps the tax collections people, from trying to garnish your wages or business income and hitting your bank account with a levy.
New York State Tax Penalty Abatement – It Can Save Money if it Goes Through
Often there is not actually any relief with the payment plan. Your best bet is getting penalty abatement. A penalty abatement is when NYS decides that your failure to pay and/or file on time “was due to reasonable cause and not due to willful neglect.” This standard is hard to reach. A lot of uninformed attorneys and tax relief companies will spend a lot of your money claiming they can get you a penalty abatement and that is a reason to hire them. Abatements can be done, but they only work in certain cases. When we handle these types of cases we inform our clients of what we think the odds are based on the situation. Just not having the money is not a good reason. Not having the money because you were dying and needed medication would be a good reason.
Pay NYS Tax Debt in Full
You can pay the debt in full. If you are reading this, you probably cannot pay the debt in full or you do not want to liquidate your assets. If you qualify to do this, you can get a payment plan instead, but keep in mind the penalties and interest will continue to grow. To pay in full, go here if you already got the bill. Go here if you have not yet received the bill and the balance due is on a recently filed tax return.
It’s a nice but expensive place, and then you got the taxes too.
Do Nothing: What Will New York State Collect?
If you do nothing, the New York State Tax Department will send your case to collections. The case is assigned to the collections area and eventually may be assigned to an individual collector. NYS can issue a levy on your bank account or funds you were to receive from things like rent, estate payouts, etc. They can issue a garnishment on your wages called an income execution. The amount cannot exceed 10% of gross income or 25% of disposable earnings.
The following funds are exempt from garnishment and levy:
- Social Security and supplemental security income
- Welfare
- Alimony
- Child support
- Unemployment or disability payments
- Worker’s compensation benefits
- Public and Private Pensions
If your bank account gets hit and you can prove the funds were one of the types listed above, you can get the bank levy reversed to the extent you can prove those amounts are one of the above categories. Doing nothing is usually the worst option. If you cannot afford to pay anything, Offer in Compromise or hardship is better.
Getting NYS Tax Debt Relief – Do It Yourself or Get a Qualified Tax Attorney
If you owe less than $20,000 you may be best off just dealing with the debt yourself. You can see our tax help guide for information that may help you. I recommend you have an experienced tax attorney handle your case if you owe over that. If you hire someone, make sure you hire a tax law firm and not a tax relief company. Most tax relief companies charge high upfront fees and could close at any time. This happened to clients of JK Harris, Blue Tax, Nationwide Tax Relief, American Tax Relief… and the list goes on and on. We are highly experienced in dealing with NYS tax debt relief even though our office is located in Las Vegas, Nevada, as we help clients nationwide. We have handled more NYS cases than most NY attorneys and our rates are typically much more affordable as we do not have NY overhead costs. For a free consultation with one of our tax attorneys submit a request on our tax resolution help page or call us at (888) 515-4829 and we’ll get back to you. See why we have rated 5 stars on Yelp!