As if tax laws aren’t already difficult enough to navigate, why not add some bankruptcy laws to the mix as well? When it comes to their taxes, many people are confused about what they can and can’t include in their bankruptcy. In some cases, what you can include might also depend on what kind of bankruptcy you file. In other cases, you simply can’t file on certain types of taxes at all.
These laws can be so difficult to navigate that you will need an experienced bankruptcy lawyer to help manage the process. In part, this is because one of the main factors driving some of these laws and guidelines is timing. What you do and when you do it is almost as important as how much you owe.
Including Income Tax in Bankruptcy
If you owe income taxes from previous years, and in some cases, even the current year, you may be able to file bankruptcy on them. There are specific time guidelines in place that govern which taxes you can file on, so be sure to discuss the dates and details with your lawyer. The 3/2/240 rules apply when determining the terms for which taxes you can include in your bankruptcy. They are not only governed by date, but also by time due, time filed, or time assessed.
- 3-year rule: Taxes that were due three years before you file bankruptcy
- 2-year rule: Taxes that were filed two years before you file bankruptcy
- 240-day rule: Taxes that were assessed 240 days before you file bankruptcy
Note that extensions, amendments, corrections, and anything else that extends any of the original dates of filing, dates of assessment, or due dates will have an impact on the date that you rely on for your bankruptcy. Our bankruptcy attorneys can help iron out the details and help you determine the best way to move forward.
Can I Include Employer’s Payroll Tax?
When employers pay employees, a portion of the amount paid to employees is instead paid to the government in the form of payroll taxes. Both the employee and the employer pay a portion of these taxes. If an employer does not withhold the taxes, or withholds them but does not pay them to the government, the employer may file on these taxes. However, the portion of the taxes that is paid by the employee may not be covered under bankruptcy laws. They are instead treated the same as trust fund taxes and will not be discharged during a bankruptcy case. For more information on Chapter 7 bankruptcy, click here.
Other Types of Taxes and Filing Bankruptcy
There are strict limits as to which taxes can and cannot be covered by bankruptcy. These limits recognize that mistakes happen, but they do not leave room for fraud or tax evasion. Even filing late can mean that you may not be able to claim your taxes on your bankruptcy. Also, taxes such as property taxes are not covered under bankruptcy laws. These taxes are state imposed, and as each state has their own specific standards, state taxes are treated differently than federal taxes. This means that if you file bankruptcy in one state, but have back taxes owed in another state, those taxes may not be covered, even if your past due payments for federal income taxes are covered. These intricate laws and options for different states are just one of the many reasons that an experienced bankruptcy attorney can be helpful. It’s important that you have someone on your side to make sure nothing is overlooked when you reach the decision to file bankruptcy, including tax debt.