State governments are hoping to fill their coffers by offering perks to taxpayers who voluntarily pay up past-due taxes.

In the game of Monopoly, the coveted "Get Out of Jail Free" card and "Free Parking" cash pot can keep you afloat through the worst of times. In life, you may get a similar break from state tax amnesty programs that will waive or reduce some of the most distressing consequences of tax delinquency.

Leniency on state income tax

Tax delinquency is a touchy subject that typically leaves the perpetrator subject to penalties, interest, and maybe even jail time. But these days, with government revenues shrinking as expenses rise, state and local tax collectors can hardly afford the costs of chasing down deadbeat taxpayers. A cheaper alternative is to offer amnesty to taxpayers who come forward to pay their past-due state income tax and local taxes voluntarily.

Arizona, Connecticut, New Jersey, Virginia, and Wisconsin are among the states currently offering tax amnesty. The cities of Tucson and Los Angeles are also implementing similar programs. Each of these has its own rules, but all offer some kind of perk to those who step up to pay off old tax bills. Commonly, those perks involve the elimination of some or all of the accrued penalties and interest associated with the tax delinquency. Coming clean during the amnesty period also generally allows the taxpayer to avoid prosecution.

Not all taxes qualify

If you have an old state income tax bill weighing on your mind, now's the time to tackle it. First, check with your state's Department of Revenue to see if an amnesty program is, or will be, available this year. If the answer is yes, get all of the program details before you start celebrating. Sometimes, only certain types of taxes will be eligible. Arizona's program, for example, applies to individual and corporate income taxes, sales taxes, use taxes, withholding taxes, partnership taxes, and fiduciary and luxury taxes. Connecticut's program includes most of these, plus gift taxes, attorney occupational taxes, and trust and estate income taxes.

If your state isn't offering amnesty, you still have options. You can ask if the penalties and interest are negotiable. They might be, particularly if your state doesn't want to spend the money to chase you down. You can also retain a tax lawyer to help you.

No amnesty at federal level

Before you come forward on your old state income tax bill, however, you should take a look at the status of your federal taxes. The states share income information with the federal government, so working with the state might bring you to the IRS' attention. If you owe both state and federal taxes, consult with a tax expert about your situation. You might need to take a different approach.

Tax amnesty doesn't eliminate your state income tax bill; it only shrinks it slightly by reducing the penalties and interest charges. It may not seem like much help, but it's far more valuable to you than the "Free Parking" cash pot.

    Published on November 29, 2010