State Tax Amnesty

If you owe taxes, it can pay to check on whether your state is offereing a tax amnesty program.

To encourage delinquent taxpayers to pay up, many states offer a tax amnesty from time to time: That is, if you pay the amount of tax due, plus interest, you won’t be required to pay any penalties. This can result in a substantial savings. For states without state income tax (Alaska, New Hampshire, Tennessee, Florida, South Dakota, Washington, Nevada, Texas, Wyoming), sales and property tax payments sometimes are allowed through these programs.

Each state tax program has it own eligibility requirements and deadlines. You must pay the amount owed by the deadline to take advantage of the amnesty. Some states require that an amended tax return be filed. Others have special amnesty applications.

There is one catch to taking advantage of any state tax amnesty: You must pay the amount of tax the state says you owe, plus all or part of the interest, by the amnesty deadline. If you don’t have to money to do this, you can forget about the amnesty. Try to work out a payment plan with your state tax department instead. Also, you should amend your federal tax returns to reflect the changes in your state return. The IRS does communicate with the state tax departments.

As of late 2012, a tax amnesty was in effect in only one state: Kentucky. If you owe back taxes, penalties, fees and interest to Kentucky from tax bills due December 1, 2001, to October 1, 2011, you can apply for tax amnesty with the Kentucky Department of Revenue. If you qualify, you will pay only the taxes owed and half of the interest; the state will waive all penalties and fees and the other half of the interest on your bill. However, you must apply for your amnesty by November 30, 2012. After November 30, the penalties, fees and interest will increase. For details see the Kentucky tax amnesty website.

If you don't live in Kentucky, you may still be able to benefit from a tax amnesty in the future. Over the past 30 years tax amnesties of one kind or another have been offered by Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Hampshire, New Mexico, New York, New York City, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Texas, Vermont, Virginia, Washington, West Virginia, Wisconsin, and the District of Columbia.

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