10 Frequently Asked Questions about New York State Tax Problems

In the world of taxes, the IRS often takes the center stage.
However, state tax laws feature their own set of rules and consequences. Many of these align with federal standards, but some do not. For instance, the state of New York can suspend your driver’s license if you fail to pay your taxes or fail to make alternative arrangements with the state.

When you fall behind on tax payments or receive a notice from the state tax department, you may have many questions about your own situation.

Here are 10 of the most frequently asked questions about New York State Tax Problems we receive with the answers you need to make better informed decisions about your tax liability:

1. Will the police arrest me if the state files a tax warrant against me?
2. What types of property can the state take from me via a levy?
3. When will the state start to garnish my wages and how do they do so?
4. What is the difference between real and personal property?
5. Will New York really take my license away for failing to pay?
6. Can I appeal an innocent spouse relief denial at the state level?
7. Will I qualify for an offer in compromise from New York?
8. Am I at risk for a New York state tax audit?
9. Could I be at risk as a responsible person for the tax liability of a company I work for?
10. Is a state installment agreement a better idea than personally financing my debt liability?

1. Will the police arrest me if the state files a tax warrant against me?

No, the police will not arrest you unless the state suspects you of criminal activities, such as fraud. A tax warrant does not work like an arrest warrant.

The state will issue this type of warrant after sending a Notice of Demand regarding insufficient payment. The warrant serves as a public record of your debt and authorizes the tax department to take further collection actions, including levies, income executions, and property seizures.

Unfortunately, you may not receive personal notification of the warrant. You can always look for active warrants against you at the local county clerk’s office or with the department of state.

If you discover the state has filed a tax warrant against you, you must take action to resolve your debt. To remove a warrant, you need to satisfy your debt liability or have the state vacate the warrant.
You can pay in full or negotiate a repayment plan to satisfy the debt or prove that the state made an error in issuing the warrant to vacate it.

2. What types of property can the state take from me via a levy?

If you fail to satisfy your debt after a warrant has been issued, the state may issue a levy to secure your assets.
Under the most commonly used levy, financial institutions and other third parties that manage your finances must turn your money over to the state to satisfy your debt. In other words, your checking and savings accounts are at risk for collection.
If a company or person owes you money, the state can also seize that amount. For example, the state can claim monthly payments you receive for rental properties.

The state cannot take funds that are considered exempt under the law.
It may not seize social security and supplemental security income, welfare payments, funds allocated for child support or alimony, pensions, and employment benefits, including worker’s compensation settlements and unemployment payments.

To satisfy a levy, you must pay your debt, arrange for debt repayment, or provide documentation supporting why certain funds are considered exempt.

You may not receive several warning notices before the state issues a levy. Consider any warning a red flag that you need to address your tax situation immediately.

3. When will the state start to garnish my wages and how do they do so?

The timeframe for beginning wage garnishment varies, depending on individual circumstances. If you do not have the financial funds needed to satisfy your debt through a levy and you do not negotiate the terms of repayment, the state can file an income execution, send notice, and begin garnishing your wages.

You should receive a notice regarding the terms of income execution called a First Service. From the time you receive the initial notice, you have 20 days to begin paying the state, and you must pay as soon as you receive payment.
If you fail to comply with the terms of the income execution, the state will issue a Second Service instructing your employer to send a certain amount of money out of each paycheck. This means you will not directly receive full compensation for your work.

This collection action will continue until your debt liability is resolved.

Under an income execution, the state can take up to 10% of your gross income or 25% of disposable earnings as long as the action would not put you into serious economic hardship.

4. What is the difference between real and personal property?

In a final collection action, New York tax collectors may seize and sell your real and personal property if the state believes the sale’s proceeds would meet or exceed the fair market property value and cover the expenses associated with seizure. Most of the time, this means the state will take your home or your business property, but this action can include any type of non-exempt real and personal property.

Real property includes all immovable assets, such as real estate and buildings. Personal property, on the other hand, includes all other types of property. For example, refrigerators, watercrafts, equipment, and furniture are all considered personal property.

If the state does seize your property, you have an opportunity to reverse the process before the sale. New York will work with you and return your property if you are willing to make arrangements to satisfy your debt or to pay it in full. After a sale, the state should send you any proceeds that exceed the debt you owe.

5. Will New York really take my license away for failing to pay?

Since 2013, the state’s tax department has the right to suspend your license if you owe $10,000 or more. The state will only take this action on debt that is past due and after the timeframe for review has passed.

If the tax department takes this action, you will receive a notice regarding the action and the timeframe you have to resolve the issue. You should have 60 days to respond.

You can avoid license suspension if you:

• Work with the tax department to negotiate a payment plan
• Hold a commercial driver’s license
• Are already experiencing income executions for tax debt, child support, or spousal support
• Were sent a notice erroneously and remit evidence of the error
• Are in the process of or are currently receiving protections under innocent spouse relief laws
• You are going through bankruptcy

You must work with the tax department, not the DMV, to remove a tax-related license suspension. Until the DMV receives a notice from the tax department, your license will remain suspended. Anyone who does not have a license may face restrictions on obtaining one.

6. Can I appeal an innocent spouse relief denial at the state level?

Yes, you can appeal a denial notice.
To qualify for innocent spouse relief, you must prove you did not know and had no reason to know about an error or omission on a joint tax return. You may also qualify for partial relief if you knew about an error but were not aware of the full extent of the problem.

In some cases, due to lack of information or misrepresentation, the state may reject a qualified application for innocent spouse relief. If you receive a notice of denial or terms for partial relief that you do not agree with, you do have the ability to contest the state’s findings.

You can file a Request for Conciliation Conference or petition for a Division of Tax Appeals hearing to resolve the matter. Take note of all dates and timelines during this process. You must respond in a timely manner to maintain your right to an appeal.

7. Will I qualify for an offer in compromise from New York?

An offer in compromise allows some people to pay a portion of their debt to resolve their total liability. You may qualify for this type of relief if you cannot reasonably pay back your full debt, if your debts were discharged or renegotiated during a bankruptcy, or if repaying the debt would put you into economic duress.

The tax department uses its discretion to judge each application on a case-by-case basis. These offers are custom-built to maximize the state’s earnings while ensuring that individuals who qualify can meet the terms of the agreement. Qualifying based on undue economic hardship is a relatively new criteria for state-based offers in compromise.

If you believe you may qualify, seek additional advice from a tax expert before submitting your application. A tax specialist will ensure your application accurately reflects your financial situation.

8. Am I at risk for a New York state tax audit?

The audit process is designed to help the tax department identify and correct errors in tax returns. In some cases, an audit will reveal changes in tax liability. If you owe the state, you will receive a bill after the audit. In some cases, the state may owe you and send an additional refund.

You may be at an increased risk for an audit if you:

• Claimed too many credits and/or exemptions
• Did not file your return or report certain income
• Filed a return that contained discrepancies when compared with third party information from employers, banks, etc.
• Have a history of errors or prior audits
• Filed a return that contains incorrect or potentially fraudulent information

To avoid a tax audit, work voluntarily with the tax department to settle all outstanding tax liabilities, file accurate returns every year, and only claim credits and exemptions for which you can prove qualification.

If you are singled out for an audit, you have certain rights and responsibilities. You may want to work with a tax professional to help you with the process and protect your rights.

9. Could I be at risk as a responsible person for the tax liability of a company I work for?

Under the state Tax Law, Section 1133, some individuals will face personal responsibility for the payment of corporate tax debt. Owners, directors, partners, managers, officers, and certain additional employees may all bear responsibility for business taxes.

Certain business structures, including LLPs and LLCs, may affect who the state recognizes as a responsible person. Some potentially responsible persons may qualify for relief. This is a particularly complex area of tax law.

If you are concerned that you may be classified as a responsible person, we recommend speaking with a qualified tax expert who can help you determine the hierarchy of responsibility within your business.

Even if you are a responsible person, you may qualify for relief if you can prove you were not required to act in a responsible role or if you can prove that your share of the business is less than 50% (which may relieve you from certain duties as a member of the organization).

In general, those who are partners in an organization and those who own more than half of a business will not qualify for relief from tax liabilities.

10. Is a state installment agreement a better idea than personally financing my debt liability?

Some people are so afraid of working with state and federal tax agencies that they use consumer credit to pay off tax debt. However, debt relief programs (such as installment payment agreements in New York) often provide better payment terms than a credit card or personal loan.

At the state level, an installment agreement will still accrue interest, but typically at a much lower rate than consumer credit arrangements provide. As long as you remember to pay the minimum amount agreed upon in the arrangement, the state will not take collection actions or charge additional fees on top of interest and penalties.

To sign up for an installment agreement in New York, use the tax department’s Online Services and follow the instructions. If the state denies your request, consider speaking with a tax expert about alternative solutions.

State tax issues can be confusing, particularly when they differ from federal rules and guidelines. Use these answers as a starting point, and reach out for further guidance if needed. There is always a positive alternative to inaction when it comes to state tax debt.