Is Federal Tax Debt Worse Than State Tax Debt?
Is federal tax debt worse than state tax debt? The short answer is no. Having federal tax debt is not worse than owing the state because whichever you choose not to pay, you’ll still get in trouble with the authorities. Experts note that neglecting tax debt is ill-advised
Based on the tax reform bill of 2018, there are now different federal tax brackets with rates that range from 10 to 37 percent. If you are filing and paying for federal tax for the first time, it is best to find out which bracket you belong to. Like federal taxes, state taxes are due every year. Most Americans need to file both their state and federal taxes annually.
Unlike federal taxes, however, state taxes show variations. Wyoming, Alaska, Florida, Nevada, Texas, Washington, and South Dakota do not impose income tax, while Tennessee and New Hampshire only impose taxes on dividends and interest. Other states either have progressive taxation or a flat rate.
If you don’t pay your federal taxes or fail to file them, you will be penalized. The penalty can be as low as 5 percent of the money owed or as high as 100 percent. Citizens who do not pay will have to pay interest, too. Penalties differ from one state to the next; that’s why it is a good idea to ask a professional about it just to ensure that you are paying the government what it is due.
If you owe federal taxes, it is best to communicate with the Internal Revenue Service (IRS) immediately. This is especially important when you receive a notice from the agency, as doing nothing about it will encourage them to take steps against you.
Owing money to the state or federal government will not only get you in trouble with the government bodies involved but can also ruin your credit report. An unpaid debt to the government is like any other debt. Tax liens will appear in your report and will be considered bad debt.
If taxes aren’t paid, the government effectively has a claim to your property. The IRS, for example, can take your house, vehicle, income, or bank account. However, Business Insider points out that the IRS can reconsider if you are suffering from economic hardship. All you need to do is to communicate with them and tell them about your situation. It is noted, though, that if said hardship does not apply, it is best to pay your taxes immediately.
Whether you’re dealing with state or federal tax debt, sometimes it’s helpful to work with an attorney. But make sure you’re hiring the right type of attorney. If you’re in Michigan, for example, you’ll want to call a Michigan tax attorney to help with your state tax debt.