No one looks forward to the tax season; it brings so much stress and anxiety. While some people can breathe after the filing season, many taxpayers end up with tax issues that extend through the entire financial year, and often, it’s harder to solve state tax problems than federal ones. If you are struggling to pay your taxes in full, you may want to consider setting up an IRS installment payment plan to help manage your tax debt.
In this article, we will go through the common taxation problems that taxpayers in New Jersey face and how to solve them. To get experienced help now, contact us at Paladini Law today.
Key Takeaways
- Common tax problems in New Jersey include unfiled returns, back taxes, collection actions, and audits.
- An experienced NJ tax attorney can help you deal with any individual or business tax problems in this state.
- Solutions include payment plans, closing agreements (settlements), penalty abatement, audit representation, and help with collection actions.
Common NJ State Tax Problems Handled by Paladini Law
From our experience, here are the most common tax problems that NJ taxpayers encounter:
Back taxes and unpaid liabilities
Back taxes are taxes that remain unpaid after their due date. They could be a result of underreported income, errors in tax filings, or not paying when you file.
Often, back taxes are due to miscalculated deductions, credits, or income, causing taxpayers to owe more than they should. In other cases, back taxes may arise due to a failed audit or an adjustment to your return.
Regardless of why you owe back taxes, we can ensure that your tax bill is calculated correctly. If not, we’ll guide you through the process of correcting that. If you legitimately owe the tax liability, we can help you set up payments or apply for relief options.
Unfiled state tax returns
If you live, work, or earn income in New Jersey, you may need to file a state income tax return. The requirements depend on your residency status, filing status, and gross income. This means you may have past-due taxes if you’ve not been filing your state income tax. Businesses also need to file a variety of returns in the state.
Garnishments or bank levies
A bank levy is when the state or IRS takes the funds in your bank account. A wage garnishment is when they instruct your employer to withhold a portion of your income to pay your tax debt.
Bank levies and garnishments are two of the most severe tax enforcement actions. If you don’t pay your taxes voluntarily, the IRS or state may be able to seize your bank accounts, car, wages, or even your home.
Sales and use tax issues
If you’re a business owner, understanding the complexities of sales tax is critical. You need to ensure that you apply sales tax correctly, file returns on time, and remit payments to the state as required. Otherwise, you will incur penalties – you may also face involuntary collections, risk having the state shut down your business, or even become personally liable for the tax due.
Your business may also need to pay use tax. If you buy supplies from a supplier outside NJ and they don’t charge sales tax, you still have to pay the use tax on that purchase to NJ. Also, if you keep wholesale items for personal use, you must also pay use tax. If you haven’t been doing this, this can be a problem if you’re ever audited.
Tax audit
As a New Jersey taxpayer, when you receive an audit, the initial reaction is fear and dread. However, tax audits simply mean the IRS or the Division of Taxation would like to have a closer look at your tax returns, and they want to see documents that support the information you have reported.
To be on the safe side, consider working with a skilled NJ audit defense attorney. They can guide you through the process and negotiate with the DOT on your behalf.
Residency audits and domicile disputes
Filing tax returns is hard, but it’s even harder when you’ve been moving around and you’re trying to avoid double taxation. If you’ve been living or earning money from New Jersey, it’s essential to understand your residency status to ensure that you file correctly. Filing taxes as a part-time resident or non-resident in NJ is complex and better handled with the guidance of a professional. If the state selects you for a residency audit, you’ll have to prove your residency, which can get tricky.
Collection Actions by the Division
If you owe taxes to the state of NJ and you don’t make payment arrangements, they can start the collection process to get you to pay the tax debt. Here’s what to expect:
- Referral to third-party collections: The state informs you about your tax delinquency or deficiency. If you don’t respond, they send your account to Pioneer Credit Recovery (PCR). The latter is a private company that New Jersey works with to collect overdue taxes.
- Initial contact from your case worker: After receiving your account, the PCR agency reviews your debt and assigns it to a case worker. The case worker mails you an initial contact letter with an updated schedule of liabilities detailing your current balance.
- Phone call from case worker: If you don’t respond to the mail, the case worker will attempt to reach you or an authorized representative by phone.
- Certificate of debt (COD): If you don’t take any action and your tax debt still stands, a COD is entered with the clerk of the NJ Superior Court. A COD has the same effect as a Docketed Judgment in any court of law. Once the COD is issued, a cost of collection fee is added to the outstanding liability.
Here is a breakdown of everything that comes with tax debt collection in NJ:
- Referral cost recovery fee: Once you’re assigned to PCR, a referral cost recovery fee is added to your tax liability. This is in addition to other penalties and interests.
- Delinquent returns: Once you file your delinquent returns, you receive an updated billing notice if you still have tax liabilities. The referral fee will appear as a separate item on a Schedule of Liabilities issued by PCR. However, if you delay making payments to PCR, you’ll incur an additional fee.
- Cost of collection fee: The state adds a collection fee when issuing a COD. This is in addition to any penalty and interest you owe.
- Contact information: Once your delinquency or debt is assigned to a PCR caseworker, you can no longer reach out to the NJ division agents for assistance; you have to deal with PCR directly.
Tax Resolution Options in New Jersey
If you’re struggling with a tax debt in New Jersey, there are a few things you can do to get some tax relief. Here are some available options:
Installment Agreement
Also known as a payment plan, an installment agreement allows you to make monthly payments to pay your tax debt. You can choose a short-term plan and settle your debt in 12 months, or allow a certificate of debt/judgement to be filed and pay your tax debt over a period of up to 60 months.
If 60 months isn’t enough time for you, the other option is to get into an informal payment plan. This allows you to make monthly payments, but there’s a risk that the state may move forward with garnishment or asset seizure, so you may want to work with a tax professional.
Closing agreements
The state of New Jersey doesn’t accept an “Offer in Compromise” like the federal government, but they have something close – the “closing agreement.”
The two are similar in that they all allow taxpayers to pay less than they owe in taxes. The closing arrangement includes the delinquent tax due, interest, penalties, and any collection fees that may have accrued. In our experience, NJ rarely settles these cases for less than the full tax owed, plus a portion of the interest.
Once you apply, the NJ division will let you know if they’ve accepted your offer in three to six months. You can’t appeal a denied closing agreement request, so it’s advisable to consult a tax professional if you choose this route.
Penalty abatement
Just like the IRS, the state of NJ can penalize you for missing the tax income return deadline or not filing a return. Luckily, you can ask for penalty abatement for both federal and state penalties.
NJ state allows you to abate the penalties for a reasonable cause, like death, serious illness, or any other unavoidable issues. In some cases, you may be able to get abatement if this is your first offense.
Bankruptcy
Bankruptcy can eliminate tax debt depending on the type of tax debt, how old the debt is, and the kind of bankruptcy you file. Filing for bankruptcy is expensive, and it also has consequences, like negative impact to your credit history.
Also, not all tax debts are discharged, so unless you have other personal liabilities such as credit card debt, it’s advisable to consider other tax relief options. If you want to pursue bankruptcy to get rid of your state taxes, be sure to involve a bankruptcy attorney.
Innocent spouse relief
The IRS allows you to appeal if you’ve been filing jointly with your spouse or former spouse, but you don’t feel responsible for the tax liability – for example, your spouse underreported income without your knowledge, and then the IRS adjusted your return. If approved for innocent spouse relief, you do not have to pay your spouse’s portion of the tax liability.
Unfortunately, innocent spouse relief isn’t an option in the state of NJ. Your best option may be to consider another option, like the closing agreement.
Why Choose Paladini Law for NJ Tax Issues
Finding the right tax attorney can be very challenging; you want to work with a trustworthy attorney who can help you get the desired results. Here is why you should let us handle your tax problems:
- We understand NJ tax laws: We are a New Jersey law firm, so we are right in the middle of the action. We also help resolve the IRS tax problems, so you can be sure all your tax liabilities are considered when you work with us.
- Experience: If it’s new to you, it’s not new to us. We have done all kinds of resolutions, and we can help you get your closing agreement, installment agreement, and penalty abatement approved.
- Future tax management advice: When you work with Paladini Law, we not only help you resolve your tax problems. We also equip you with the knowledge to manage your taxes moving forward so that you don’t end up in the same spot.
See what our clients are saying about us and some of the cases we’ve helped resolve.
Frequently Asked Questions ( FAQs)
What’s the difference between a deficiency and a delinquency?
A deficiency is when you file a tax return, but you only make a partial payment for the tax you owe, while a delinquency is when you should’ve filed a tax return, but you did not.
Why are NJ state tax refunds taking so long?
NJ tax refunds may be delayed if the Division has issues with the deposit information or require more information regarding the tax return. If the NJ division has sent you a letter requesting more details, responding quickly can help process your refund.
Can I use federal estimated tax payments to meet New Jersey requirements?
No, your federal estimated payments go toward your IRS tax liability. They cannot cover your state tax bill. To stay compliant with the NJ state tax, it’s best to check out the NJ Government website.
Need Help With Tax Problems in New Jersey?
Individuals and businesses face tax problems all the time. If you find yourself struggling with the details or you’re already receiving letters demanding payment of your tax liabilities, it’s time to involve a professional.
At Paladini Law, we have extensive experience with NJ tax laws, and we can help you resolve any issues you might have. Whether you’re a business owner, a full- or part-time resident, or an individual who’s just received a COD, we can help. Feel free to reach out to us about any individual or business tax problems you’re facing in this state.
