Michigan State Tax Solutions

Taxpayers Guide to Unpaid Taxes in Michigan

If you owe taxes in Michigan, the Department of the Treasury may garnish your wages, seize your assets, or shut down your business to pursue repayment. However, the DOT also offers relief options such as payment plans and settlements to help taxpayers get back on track. 

To get help dealing with unpaid taxes in Michigan or other state tax problems such as audits, assessments, refund adjustments, or collection actions, you need an experienced Michigan Tax Attorney. 

The W Tax Group is based in Michigan and has extensive experience helping individual and business taxpayers deal with the MI DOT. We also provide nationwide representation if you’re having trouble with the IRS or any other state tax agency. Contact us today to talk about your situation. 

In the meantime, let’s take a look at Michigan’s tax collection procedures and relief options.

Table of Contents

• How to pay Michigan state taxes
• Consequences of not paying Michigan taxes
• Options for dealing with unpaid taxes in Michigan
  • Installment agreement (monthly payments)
  • Penalty forgiveness
  • Currently not collectible status (pause collections for financial hardship)
  • Offer in compromise (tax settlement)
  • Innocent spouse relief 
• The appeals process for tax assessments and adjustments
• How to contact the Michigan Department of Treasury
• Tips for dealing with the MI DOT
• FAQs about Michigan tax collection
• Help from a Michigan-based tax attorney

How to Pay Taxes in Michigan

If you owe taxes in Michigan, you can mail in a payment with your tax return, or you can pay online. With some business taxes, the state may require you to pay online. Other business taxes, like the corporate income tax, can be paid online or by sending payment through the mail. 

To ensure that you meet your tax obligations, it’s important to understand how to pay your Michigan state taxes and to make a plan to pay them on time.

Consequences of Michigan Back Taxes

The Michigan Collections Services Bureau is responsible for collecting taxes owed to the Department of Treasury. If they cannot resolve the issue, they use the Michigan Accounts Receivable Collection System (MARCS) to facilitate many of their collection actions, which includes transfering the case to a private collection agency. 

If you don’t pay your state taxes, you may face the following consequences:

• Penalties – The DOT assesses a penalty of 5% of the tax due if you pay late. After two months and for every month after that the taxes remain unpaid, the agency assesses another 5% penalty, up to 25% of your balance. The DOT also assesses interest at a rate that changes every six months. As of December 2023, the rate is 8.25%. 
• Tax lien – If you don’t pay your tax debt within 35 days of the date on the Final Bill for Taxes Due, the MI DOT can file a tax lien against your real and personal property. If you or your business is out of state, the DOT will file the lien in Ingham County. 
• Loss of tax refund – If you have unpaid state taxes, the DOT can keep your tax refund. The DOT can also keep your refund if you owe taxes to the IRS or any other state agency. Additionally, the DOT may garnish refunds for judgments due to private creditors. 
• Tax warrants – The DOT can use a tax warrant to seize your business and personal property if you don’t pay your taxes. The DOT must notify you 10 days before seizing the property, and they must hold the property for at least 10 days before selling it with the exception of perishable items which may be sold within 24 hours. Any costs incurred to execute the warrant (locksmith services, towing, storage, personnel expenses etc.) will be added to your bill. 
• Wage levies – The DOT can also garnish your wages if you don’t pay your state taxes. They will send you a notice at least 10 days before contacting your employer. Your employer will withhold a certain portion of your paycheck and send it to the state until your taxes are paid in full. There is a $55 fee to start the garnishment.
• Bank levies – The state can also seize the funds in your bank account to cover your unpaid state taxes. This also leads to an additional $55 charge, and again, the DOT must notify you at least 10 days before starting the garnishment. 
• Levies of assets held by third parties – The Department can also seize assets held by third parties, such as rent that someone owes you or accounts receivables owed to your business. This collection action also requires a 10-day warning, and the taxpayer will incur a $55 charge. 

In addition to the above actions, the DOT may also pierce the corporate veil and hold a variety of individuals responsible for unpaid business taxes in Michigan. The Department can also revoke your liquor license or other business licenses for unpaid taxes. If applicable, they may refer your account to the Michigan Department of Attorney General for additional legal actions. 

 It’s important to consider Michigan tax relief services before your tax debt reaches this point.

Options for Tax Relief in Michigan

The Department understands that sometimes individuals and businesses cannot pay all of their tax liability on time in full. To help, the DOT offers a variety of options including payment plans and settlements. 

Michigan Tax Payment Installment Agreements

Michigan offers installment agreements to individuals and entities. For individuals, twenty-four-month installment agreements are automatically accepted and no financial form has to be submitted to the state. Installment agreements beyond 24 months are reviewed on a case-by-case basis, and they require a financial form with supporting documents.

If the business entity is open and operating, the maximum time frame for an installment agreement is 36 months, and the business may need to provide financial details. When a business no longer exists, the state offers 36-month installment agreements with no financial details required. If the balance cannot be paid in full within 36 months for non-operational business entities, there is no maximum length of time for extended installment agreements. However, a financial form with supporting documents must be provided to the state. 

How to Apply

To apply, you must file the following forms:

• Form 990: Michigan Installment Agreement. 
• Form 3189: Collection Information Statement (only required for individuals who need more than two years to pay)

Michigan Payment Plans Vs. IRS Installment Agreements

IRS Installment Agreements give taxpayers up to six years to pay up to $50,000 without requiring a financial disclosure. In contrast, in Michigan, you must submit financial details if you need more than two years to pay. The IRS requires you to be up to date on your filing requirements, but Michigan will let you set up a payment plan even if you have unfiled returns from other years.

Penalty Abatements

The state may remove your penalties if you incurred them due to reasonable cause. That includes paying or filing late due to illness, fire, or natural disaster, but it can also include tax practitioner error or not receiving certain notices due to moving. The DOT does not remove penalties for inability to pay, unemployment, financial hardship, or duress due to tax liability.

In Michigan, business entities can request an abatement of penalty for a particular period or year after first paying the tax and interest.

How to Apply

Send your request in writing to the Department of the Treasury. Note your Social Security Number and the reason for the request in your letter, and send it to the address on the last bill or notice you received. 

IRS Penalty Abatement Vs. Michigan Penalty Abatement

The IRS removes penalties for reasonable cause just as Michigan does. However, the IRS also offers first-time abatement for people who have a solid history of compliance. Additionally, while the IRS will also accept a written request, the agency also has a specific form called Form 843 to request penalty abatement. 

Michigan CNC: Currently Not Collectible

Michigan offers a non-collectible status to taxpayers who cannot afford to pay. If you qualify, the Department will stop all collection actions against you. To qualify, “allowable” monthly expenses must meet or exceed monthly income, and you must show that you don’t have any disposable income to pay your back taxes.

For individual taxpayers, allowable living expenses include only expenses that are considered necessary. The Michigan State Treasury adheres to financial standards similar to the financial standards published by the IRS for housing, utilities, transportation, medical costs, food, clothing, and other items when possible.

How to Apply

To apply, file Form 990: Installment Agreement and indicate a monthly payment of $0 per month. Then, also file Form 3189: Collection Information Statement – Individual, and provide supporting documents to substantiate an economic hardship.

Michigan Currently Not Collectible Vs. IRS Currently Not Collectible

Both IRS CNC status and Michigan’s program give taxpayers relief from tax collections if they cannot afford to pay. The IRS does not have a set form to apply. You simply contact the agency. 

Michigan Offer in Compromise

As of 2015, the Michigan Department of Treasury is authorized to offer settlements to qualifying taxpayers through the state’s Offer in Compromise program. This program offers settlements to taxpayers who cannot afford to pay their liability as well as to taxpayers who believe they do not owe part or all of the tax liability. 

If you wish to apply based on doubt as to liability, all of the appeal opportunities related to the assessment must have expired. 

How to Apply

To apply for an Offer in Compromise due to Doubt as to Collectibility, you should submit the following:

• Form 5181CI: Michigan Offer in Compromise for Individuals, or
• Form 5181CB: Michigan Offer in Compromise for Businesses

To apply based on Doubt as to Liability, submit the following

• Form 5181L: Michigan Offer in Compromise

You can find these forms here: Michigan Offer in Compromise forms

Alternatively, if you get an offer in compromise from the IRS, you can apply based on that using MI Form 5181F. Also, include a copy of the IRS forms and your acceptance letter. 

IRS Offer in Compromise Vs. Michigan Offer in Compromise

One significant difference is that the IRS has an Offer in Compromise based on Effective Tax Administration. That applies in situations where you can afford to pay some or all of the tax, but it would be unfair (inequitable) to require you to pay in full. If that describes your situation, you may want to get approval from the IRS and then apply in Michigan.

Innocent and Non-Obligated Spouse Relief

If you incur a significant tax liability due to your spouse, you may be able to get relief through the state’s Innocent Spouse Relief Program. For example, this may apply if your spouse underreported income without your knowledge or coerced you into filing a false return. If you qualify, the Department will only hold you repsondible for your portion of the tax bill, not your spouse’s. 

There is also Non-Obligated Spousal Relief which applies in situations where the Department seizes your refund for your spouse’s debt. In that case, you can get the portion of the refund related to your income returned to you.

How to Apply

The Department doesn’t advertise a form for Innocent Spouse Relief. You must apply to the IRS’s program first, and then, if you get approved, Michigan will offer you similar relief on your state taxes. To apply for Non-Obligated Spouse Relief, file Form 743.

IRS Spouse Relief Vs. Michigan’s Programs

Michigan follows the IRS’s laws for Innocent Spouse Relief. If you get accepted by the IRS, you will get the same treatment for your Michigan State taxes. Michigan’s Non-Obligated Spousal Relief is also nearly identical to the IRS’s injured spouse relief program.

Michigan Tax Appeals

If the Department attempts to assess tax against you after an audit or by adjusting your tax return, you may appeal by requesting an informal conference. You must do so in writing within 60 days of receiving the notice. The DOT will notify you at least 20 days before the conference, and you can attend over the phone, in person, or through a video meeting. 

After the conference, the Hearing Referee will issue a recommendation, and then, the Department send you its decision through certified mail. At that point, you have additional appeal rights will be outlined in the notice. 

You can request an informal appeal by filing Form 5713 (Request for Hearing/Informal Conference). Or you can send a written request for the conference to the Department of Treasury, Hearings Division, PO Box 30038, Lansing, MI 48909. You can also reach appeals at (517) 636-4117. 

If the DOT adjusts or denies your tax refund, you also have the right to request an informal hearing within 60 days. Alternatively, you can petition for a hearing with the Michigan Tax Tribunal within 60 days. The Tax Tribunal is a more formal process than the informal conference. As of 2024, if the amount in dispute is less than $29,431, you can request a Small Claims appeal by filing a form with the Small Claims Division. 

You also have 90 days to file an appeal with the Michigan Court of Claims. To do so, you must file a Summons and Complaint with the District Office of the Court of Claims. If you select this option, you can represent yourself or hire an attorney. CPAs and enrolled agents can represent you through the other appeals processes, but not in court. This process is subject to court rules and is more formal than the others. 

Michigan DOT Contact Information

If you need to reach the MI DOT to request payment plans, appeal collection actions, or ask questions about tax obligations, you can use the following contact information:

• General Tax Information: 517-335-7508
• Individual Tax Inquiries: 517-636-4486
• Business Tax Inquiries: 517-636-6925
• Collections: 517-636-5265
• Garnishments/Levies 517-636-5333
• Taxpayer Advocate Service: 517-636-4759
• Michigan Department of Treasury Website: www.michigan.gov/taxes

When you call, listen carefully to the prompts to ensure your call is directed to the correct department. A tax attorney can call on your behalf if you prefer to have someone represent you when dealing with the DOT.

Tips for Dealing with the DOT

State tax issues can be complicated and frustrating, but these tips can help you navigate dealing with the DOT:

• Don’t ignore DOT notices – Although it may be tempting, open all notices and read them carefully. 
• Respond by the deadline – Many deadlines are tied to state statutes that don’t allow exceptions, especially if you’re dealing with collection actions or appeals. 
• Ask to speak to supervisors – If you cannot get the resolution you want when talking with a DOT employee, ask for their supervisor. 
• Appeal as needed – You have the right to appeal a variety of actions initiated by the state. Use your appeal rights to protect yourself, but make sure that you avoid frivolous appeals that are just designed to waste time as they will hurt you in the end.
• Reach out to the Taxpayer Advocate Service – The Taxpayer Advocate Service helps taxpayers when they cannot resolve their problems through regular channels or when the Department is taking excessively long to respond. 

Also, if you decide to get legal help, make sure you select a tax attorney who has experience working with the DOT. States have very specific tax codes and resolution processes, and if you select a tax pro who doesn’t have the right experience, they may not be able to get you a strong, budget-friendly resolution. 

FAQs About Michigan Taxes

Is it easier to deal with the Michigan Department of Treasury or the IRS?

There’s a misconception that the IRS is more difficult to work with when resolving income tax liability than state taxing authorities. Surprisingly, it is actually more difficult to resolve tax liabilities with the state. To protect yourself, make sure you hire representation that has experience with your state’s revenue agency.

How long does the Michigan DOT have to collect back taxes?

The statute of limitations on state tax collection for Michigan is six years. However, the statute of limitations is renewed every time the taxpayer reaffirms the liability—either by signing an acknowledgment (required to set up a payment plan or receive non- collectible status,) or by making a voluntary payment.

What actions can extend the time to collect?

If you do the following, you may “reaffirm” the tax liability and give the Department additional time to collect:

1. Makes voluntary tax payments,
2. Signifies to the liability on a letter of acknowledgment, or
3. Mutually agrees to extend by signing an agreement with the Commissioner of Revenue.

Before taking these actions on back taxes, you may want to consult with an attorney to ensure that this is the best decision for your situation. 

Which collection agencies work with the MI DOT?

As of 2024, the Michigan Department of Treasury contracts with the private collection agencies GC Services LLP and Harris & Harris LTD. If you are contacted by a collection agency and are not sure whether or not they are legitimate, check the DOT’s website to see which agencies the DOT is currently using. 

What should I do if I’m the victim of tax-related identity theft in Michigan?

If you are affected by identity theft, you can contact the Identity Theft Unit of the Income Tax Division of the DOT at (517) 636-4486. You can also reach them by mail at PO Box 30477, Lansing, MI 48909. 

Where is my Michigan state tax refund?

You can check the status of your state tax refund with the DOT’s Where’s My Refund tool for individual income tax. If you e-filed, you should generally receive your refund in three to four weeks and six to eight weeks if you file on paper. To use this tool, you need your Social Security Number, last name, tax year, adjusted gross income (AGI), and filing status. 

Get Help With Michigan Back Taxes Today

At the W Tax Group, we have extensive experience helping taxpayers deal with the IRS, the New York Department of Taxation and Finance, the Michigan Department of Treasury, the Indiana Department of Revenue, the Illinois DOR, and the taxing authorities in every other state. 

Tax issues can be stressful and intimidating, but the sooner you deal with them, the better. If you’re dealing with state income taxes or business taxes such as sales tax, we can help. Don’t wait until you’re dealing with severe collection actions. Instead, get help today. Contact us at the W Tax Group to learn more.