State Tax Amnesty Explained

State tax amnesty is a state government program that allows taxpayers to pay their state taxes late without having to pay the penalties that are normally charged when the taxes are not paid on time. While state governments have the power to go after delinquent taxpayers, it is a time-consuming process that requires funding and manpower. State tax amnesty programs allow state governments to recover at least some of the money they are owed without using too much of their own resources. State tax amnesty is usually implemented for a limited time, and it tends to only apply to certain types of state taxes and/or taxpayers.

Understanding State Tax Amnesty

When a taxpayer fails to pay their state taxes on time, they become delinquent. They are charged interest for every year they are delinquent, so the longer they wait to pay their state taxes, the more interest they will have to pay. And once they do pay their taxes, they will have to pay additional penalties.

The state tax amnesty is designed to reduce those extra penalties. The amnesty is set for a certain fixed period. Usually, this period is fairly short, lasting an average of 2-3 months. During this time, the state government will either reduce the penalties or eliminate them altogether to any taxpayers who repay any taxes and interest they owe in full. Once the amnesty period ends, many states impose larger penalties on taxpayers who pay their taxes during the rest of the tax year.

Who Qualifies for State Tax Amnesty

In most cases, state tax amnesty does not apply to all state taxpayers. Instead, it is geared to either certain groups of taxpayers, certain types of taxes or some combination of both. For example, the state governments might create a tax amnesty program for taxpayers who live in lower-income neighborhoods. Alternatively, the state governments may open the amnesty program to all groups, but it would not extend the amnesty towards certain taxes. For example, the 2010 Illinois state tax amnesty did not cover property, insurance and estate taxes, among others. In most cases, state tax amnesty does not cover taxpayers who are under criminal investigation or face civil or criminal litigation.

Each state tax amnesty program is unique. Taxpayers who wish to take advantage of the amnesty in their state should consult their state government's official websites or in their local publications.

Alternative to State Tax Amnesty

If taxpayers cannot participate in the state tax amnesty program, or if there is no tax amnesty program on this particular year, they can repay their state taxes with reduced penalties through other programs. They include:

• Voluntary Disclosure Programs--these programs allow taxpayers to file their taxes late at any point during the given tax year.
• Voluntary Compliance Programs--these programs allow taxpayers who hid their delinquency using tax shelters to voluntarily reveal which taxes they own.