Owing Both the IRS and the State: How Delinquent State Taxes Are Treated

Plenty of taxpayers owe only the IRS. But people move, businesses operate across state lines, and plenty of taxpayers who now live in Florida still owe a state they left. When you owe both the IRS and a state, the IRS has a specific procedure for deciding how much of your money it will let the state have.

Where it appears on the forms

Form 433-A (Rev. 6-2026) has a dedicated line: line 48, "Delinquent State or Local Taxes." Form 433-F lists "Delinquent State & Local Taxes (minimum payment)" in Section H, box 5. The Form 433-F instructions say to enter the minimum amount you are required to pay monthly and to "be prepared to provide a copy of the statement showing the amount you owe and if applicable, any agreement you have for monthly payments."

When the IRS will allow a state tax payment

IRM 5.15.1.11 says payments for delinquent state or local tax liabilities may be allowed:

• When a taxpayer owes both delinquent federal taxes and delinquent state or local taxes and cannot full pay.
• When the taxpayer is cooperative and provides complete financial information.
• When the taxpayer tells the IRS about the state or local debt and provides verification of the liability and any agreement.

Current state taxes are a different item. Current year federal, state and local taxes are allowed as a necessary expense "regardless of whether the taxpayer made them in the past or not." This page is about old state balances.

The percentage allocation

When there is no existing state agreement, IRM 5.15.1.11 uses a proportional split of your net disposable income. The steps:

1. Determine net disposable income on Form 433-A or 433-F, without including anything you pay on the state debt. Net disposable income is gross income minus allowable living expenses.
2. Total the liability owed to each agency, including penalties and interest to date.
3. Divide net disposable income between the agencies in proportion to their share of the total liability.

The IRM's example: $10,000 owed to the IRS and $5,000 to the state, for a total of $15,000. The IRS share is 67 percent and the state's is 33 percent. With $400 of net disposable income, the IRS payment is $268 and the state payment is $132.

When there is already a state agreement

The IRM treats existing state agreements differently depending on when they were made relative to the earliest IRS assessment:

Timing matters. A state agreement that predates the IRS assessment gets more respect.

When allowing the state payment would produce CNC

This is the hardship scenario, and the IRM speaks to it directly. If allowing even a minimal monthly state payment would result in the account being reported Currently Not Collectible due to hardship:

• If there is no existing state agreement, the IRS does not allow a state payment and advises the taxpayer to use the miscellaneous allowance for it.
• If the state agreement was made after the earliest IRS assessment, same result: no state payment allowed, and the miscellaneous allowance is suggested.
• If the state agreement was made before the earliest IRS assessment, the state allowance is reduced to leave room for an IRS installment payment, and the taxpayer is told to use the miscellaneous allowance for the difference.

The IRM's example: net disposable income is $70 without the state payment. The existing pre-assessment state agreement is $100 a month. The IRS allows $45 for the state and sets the IRS payment at $25. The taxpayer covers the remaining $55 of the state payment from the miscellaneous allowance. When the state debt is paid off, the IRS payment rises to $70.

In other words, the IRS will not let a state payment push an account into CNC if it can avoid it. If you are in genuine hardship with no money left after allowable expenses, the state tax payment generally will not be what keeps you there.

The small-payment backup

There is a detail in IRM 5.15.1.11 that matters for borderline cases. If net disposable income is less than $25, the employee is told to "prepare a backup Form 53 due to hardship along with the installment agreement in case of eventual default and termination." Form 53 is the CNC report. The IRS is anticipating that a tiny payment plan may fail and preparing the CNC paperwork in advance.

No effect on liens and levies

The IRM is careful to add that allowing state payments "has no effect on lien or levy priorities. This guidance only impacts determinations of ability to pay." Which government gets paid first from a specific asset is a separate legal question.

If a state already has a Federal/State Memorandum of Understanding for joint agreements, the IRM says to follow those guidelines instead.

The six-year rule and minimal state payments

The IRM adds one more relief valve for installment agreements. "Minimal payments for delinquent state or local taxes are allowed for Installment Agreements using the six-year rule." Under that rule, taxpayers still provide financial information but "do not have to provide substantiation of reasonable expenses," and the IRS does not have to verify the state payment or run the percentage calculation. This matters when you can pay the IRS in full within six years and the collection statute. In a hardship case, where you cannot pay at all, it usually does not come into play, but it is worth knowing if your situation improves.

Proving the state debt

Verification is a condition of the allowance. Bring the state's most recent balance statement showing tax, penalties and interest, and the signed payment agreement if there is one, with the date it was entered. Proof that you are actually making the state payments, such as bank statements, helps too. Without that paperwork, an IRS employee has no basis to allow anything for the state.

Local taxes count too

The IRM language covers "state and local (county or municipal) tax liabilities." Delinquent county property taxes on a home are a common example. Those can also show up in the housing analysis, because property taxes are part of the housing and utilities standard. Do not list the same property tax twice. If you are on a county payment plan for back property taxes, decide with care whether it belongs on the housing line or the delinquent tax line, and explain your choice.

Strategy

If you owe a state and the IRS, the order in which you set up agreements matters. A state agreement entered before the earliest IRS assessment is treated more favorably than one entered after. That is a historical fact you cannot change, but you can make sure the IRS knows the date. Bring the state agreement and its signature date.

And if you are in hardship, tell both agencies. Many states have their own hardship or uncollectible procedures. The IRS determination does not bind a state, but a well-documented federal hardship finding is persuasive evidence anywhere.

Two collectors do not mean twice the trouble if you understand the formula. It means one more set of rules to get right.