In theUnited States, in addition to federal taxes you will also have to pay state taxes in most states. Each state has its own taxes and rate of taxation.
You will have to pay a state income tax in most states. The income rate of state income tax will depend on the state law. The rate is generally lower than the Federal income tax. Even in states with state income tax, not all income is taxes. In some states, you have to pay taxes only on income from dividends and interests. Generally a person’s state income tax is based on his or her Federal income tax returns. State law generally uses your Federal adjusted gross income or taxable income as the starting point. To file you federal income tax return, you must file Form 1040. There are different variations of this form based on the filing status.
California Income Tax
The State ofCaliforniaimposes state income tax. You must pay aCaliforniaincome tax over and above the federal income tax.Californiaincome tax is payable on the income earned inCalifornia. You have to payCaliforniaincome tax even if you are not a resident ofCaliforniabut you have earned an income from aCaliforniasource.Californiastate income tax returns must be filed on Form 540. Like the Federal Form 1040, there are different variations of this form based on the filing status.
Deductions and Credits
As a tax payer you can claim certain deductions on your tax returns – both state and federal. The most commons tax deductions include necessary business expenses, educational expenses, medical and dental expenses, mortgage expenses, etc.
If you are conducting a business and you have employees you must pay payroll taxes. Federal payroll taxes are administered by the Internal Revenue Service and include Medicare, social security, unemployment insurance and income tax withholding. Many states have their own payroll taxes. InCalifornia, the payroll taxes are administered by the EDD or the Employment Development Department. You must payCaliforniaincome tax if you hire one or more persons inCaliforniato work for you and you pay them a salary or wage. If you are paying more than $100 in total wages to one or more of your employees in one calendar quarter, then you must register with the EDD. Even households that employ workers to do household work and pay wages will be subject to payroll taxes in California and must register with the EDD if they pay $750 in cash wages to one or more household employees in one calendar quarter. Californiapayroll tax includes unemployment insurance, employment training tax, state disability insurance andCaliforniapersonal income tax. State disability insurance and personal income tax are withheld from the wages paid to the employees.
Consequences of Non-payment
Non-payment of federal and state taxes is a serious offense. If you default on your tax payments, you will receive a notice from the IRS (for federal taxes) and the state tax agency asking you to pay the taxes. If you still do not pay despite having received the notice, the IRS and the state tax agency will take steps to collect the taxes from you. The IRS and the state tax agency can fix a lien on your assets and garnish your wages and bank accounts. The IRS and the state tax agency can offset any tax refund that you may be entitled to against your tax debts.
Challenging a Tax Debt
When you receive a notice of a tax debt, you can challenge the notice if you believe it is not correct. If your tax returns have been chosen for auditing, you will be allowed to present your side of the case. You can appear in person or through a tax practitioner or attorney. You can explain to the tax official the basis on which you have filed your reply. If the results of the audit are against you, then you can appeal against the result.
As a tax payer you have certain rights. The IRS and the state tax agency must treat you in a professional and respectful manner. Your privacy must be protected. All your communication must treated with confidentiality. Your returns cannot be accessed by anyone else. If you are called on to provide any information, you have the right to know why the information is being sought and the information will be used. You have the right to know what steps will be taken if you do not provide requested information. You don’t have to pay more than the correct amount of tax. If you cannot pay all of your tax when it is due, you can request to be permitted to make monthly installment payments. You can request a waiver of penalties if you demonstrate that you acted in good faith and in a reasonable manner or you relied upon a wrong advice given to you by an IRS or state tax employee. You can appeal any decision on your tax liability and collection action.
Offer in Compromise
If you have tax debts and action is being taken against you to collect the tax debts, you can make an offer in compromise. By making an offer in compromise, you are offering to pay less than the full amount of the taxes owed by you. There is no obligation on the part of the IRS or the state tax agency to accept your offer in compromise. Your offer in compromise will only be considered if you have exhausted all your other options such as installment agreements. The amount you offer must be equal to or exceed your reasonable collection potential as determined by the IRS or the state tax agency. Generally an offer in compromise will only be accepted in exceptional circumstances when you can prove that collection of the tax will create an economic hardship or will be unfair and inequitable.
You can also enter into an installment agreement to pay off your tax debts. In an installment agreement you can pay off the tax debts in installments. However your installment agreement must be accepted by the IRS or the state tax agency.
Bankruptcy can discharge most of your debts. However tax debts will survive bankruptcy. Tax debts cannot be discharged in bankruptcy.