The Internal Revenue Service requires most income earners to file tax returns each year to ensure that they pay the appropriate amount of tax, but your tax filing obligations may not end after filing your federal return. If you live in a state with income tax, you might have to file a state tax return in addition to one you send to the IRS. Failing to file a state return can potentially result in tax penalties.
If you don't file a state return when you are required to, you face possible tax penalties down the road.
State Income Tax Basics
State governments can impose income taxes on residents along with sales taxes and property taxes to raise the revenue they need to operate. Seven states in the nation that do not have a state income tax: Alaska, Florida, South Dakota, Washington, Nevada, Texas and Wyoming. Two others, New Hampshire and Tennessee, only tax dividends and investment income. Unless you live in a state with no income tax, you may be required to file a state tax return. Filing requirements vary from one state to another, but if you have to file a federal return, chances are you'll be required to file a state return as well.
If you are unable to file a federal return by the normal due date of April 15, you can apply for a 6-month filing extension. According to FreeTaxUSA, some states automatically grant you an extension to file your state tax return if you are granted an extension on your federal return. On the other hand, certain states require you to file a separate request for an extension on your state tax return. Getting an extension can potentially help you avoid late-filing penalties, though it may not help you avoid paying interest if you owe tax.
Interest and Penalties
When you don't file a tax return by the due date, you may face interest charges on the amount you owe, a late payment penalty and a late filing penalty. If you don't owe any additional state tax beyond the amounts you paid through withholding and estimated taxes, you generally won't face penalties. The exact amount of the penalties you face can vary from state to state, but they tend to mirror the penalties that apply to federal returns. For example, both New York and California impose a late filing penalty of 5 percent of the unpaid amount per month up to a maximum of 25 percent.
Income Tax Refunds
It is a good idea to file your state income tax return as soon as possible even if it is late or you don't have the means to pay all the tax you owe, to minimize penalties. You also may benefit from filing a state tax return even if you don’t owe any tax, since you may be due a state tax refund.
- Bankrate: Is a State with No Income Tax Better or Worse?
- FreeTaxUSA: Does My State Accept My Federal Extension Too?
- Internal Revenue Service: Form 4868 -- Application for Automatic Extension of Time To File U.S. Individual Income Tax Return
- New York State Department of Taxation and Finance: Interest and Penalties
- Government Hub: Sales Tax is The Best Way For States to Get The Revenues They Need
Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.