What About My Maryland Taxes?
Maryland state taxes do not expire. Maryland can estimate what you owe even if you don’t file a tax return. And Maryland is much more aggressive in its collection efforts than the IRS. For all these reasons, you should always resolve your state taxes before your IRS debt.
Unlike the IRS, the state of Maryland will never give up on collecting from you. There is no statute of limitations on tax debt in Maryland and unpaid taxes collect interest at a whopping 13% per year. Maryland can and will collect taxes from you that are 10, 15, or 20 years old. You cannot wait out the state of Maryland!
Also, Maryland does NOT require you to file your taxes before working out a settlement agreement. You may think this is a good thing, but it may not be. Maryland will simply estimate what they think you owe and try to collect it from you. Do you think they are going to give you their lowest estimate or their highest? They just want you to pay something. Moreover, if you don’t file, you can never wipe out the taxes in bankruptcy, since to do so you must have filed a return.
What’s more, Maryland is also much more aggressive than the IRS in its collection tactics. They can suspend your driver’s license, your occupational license, take your tax refunds, put a lien on your house, or garnish your paycheck.
If I Owe the IRS And the State Of Maryland, Does It Matter Which One I Settle With First?
Yes. Paying the IRS before you pay the state of Maryland can be a huge mistake. As seen above, taxes owed to the state of Maryland will never expire. So if you take all of your available income to pay the IRS, your Maryland debt will only continue to grow. Once you finish paying the IRS, you will still have to deal with a now much larger state tax debt.
Also, when the IRS looks at your available income to determine how much you can afford each month, you can deduct any payments you are making for state tax debt. This may reduce the total amount you pay every month if you have payment plan with both the IRS and Maryland. If your payment to Maryland takes up ALL your available income, the IRS may put you into CNC status and not require you to pay anything.
Maryland, on the other hand, does not care if you are paying the IRS. They want their money and they want it now.