People often wonder what happens if they owe the State of Maine back taxes. Usually, the question appears in the context of filing a return showing an amount due. The timeline the Maine Revenue Service generally follows is not well published. People are often more anxious than they need to be.
What happens if you owe Maine Income Taxes?
To combat that anxiety around this situation, we wrote up a general outline. This outline details what happens in Augusta after a taxpayer files with a self-assessed amount due. Please note that this article assumes the taxpayer is electronically filing. With paper filing, Maine Revenue Services takes longer to receive and process the return.
Maine Revenue Collection Timeline
- 0-7 Days from Filing – The Electronic Tax Return File is accepted. An acknowledgement is sent.
- 7-62 Days from Filing – A Note 1 Underpayment is sent to the taxpayer. This usually takes at least a week to process from the acceptance of the return. Sometimes, it takes up to a month.
- 63-73 Days from Note 1 – A 10-day demand letter is issued. If the balance is not paid in full, a 25% demand penalty is assessed.
The key thing to remember is that Maine takes 70-100 days from the electronic filing to issue a demand letter.* This demand letter triggers the potential for the assessment of the 25% demand penalty. Assuming a record of past correspondence exists recipients can get a sense of where in the process they are. Once determined, they can figure how far off the demand penalty is and strategize about how to avoid it.
*Or full process of a paper return.
How long before Maine Revenue Sends a Bill?
Understanding the timeframes for the collection letters can also help inform a decision about if a payment plan is needed. Once people realize they have 2-3 months to pay before any enforced collections start, the problem seems more manageable. In addition, some taxpayers employ paper filing to slow down the collection process.
When a taxpayer paper files instead of filing electronically, they receive extra time before the collections process starts. During this time, normal penalties and interest accrue. However, the countdown clock to the 25% demand penalty does not start until the return is processed. Taxpayers should know that interest and penalties will be charged.
This is true even if the taxpayer fully pays before being assessed the 25% demand penalty. However, if a transaction, like a sale or purchase of a house comes up, extra time can make a huge difference. Some clients find the extra time to be well worth paying a small amount of penalties and interest.
How to Stop the Maine Revenue Collection Process Without Full Paying the Balance Due
Entering an acceptable payment plan stops all MRS collections actions. Maine Revenue accepts compliant payment plans of up to two years. In the past, the MRS accepted plans for up to three years. If a taxpayer can’t pay the debt in 6-12 months MRS requires the submission of financial information before accepting payment arrangements.
This information request is designed to verify that the taxpayer can not pay more quickly. If more than two years is needed to fully pay, the risk for liens goes up significantly. However, the Maine Revenue Service rarely garnishes additional wages or levies financial accounts after financial information has been submitted.