You filed your taxes, and now you’re staring at two separate balances — one to the IRS and one to your state — and wondering where to even start.
This is more common than people think, and the answer isn’t obvious. The IRS and your state tax agency are two completely separate systems. They don’t communicate, they don’t share payment plans, and they don’t split the money you send. Each one expects to be paid independently, and each one will come after you independently if you don’t act.
So who goes first?
The short answer: pay whichever one is actively coming after you. If neither has started collections yet, your state usually needs to move to the front of the line.
Here’s why.
The IRS and Your State Are Not the Same Thing
It helps to understand this upfront. When you owe both federal and state taxes, you’re not dealing with one problem — you’re dealing with two separate creditors with two separate sets of rules, timelines, and enforcement tools.
Your federal refund cannot be automatically applied to your state balance, and your state refund cannot be applied to your federal balance. Per TaxSlayer, the two systems operate independently, and any offset has to be handled manually or through a formal program. That means even if you received a state refund this year, it won’t help your federal balance unless you send it yourself.
This also means you need two separate plans. A payment agreement with the IRS does nothing for your state balance, and vice versa.
Why Your State Debt Often Needs to Come First
Most people assume the IRS is the scarier of the two. And in terms of sheer size, federal balances are often larger. But size isn’t the same as urgency.
State tax agencies frequently move faster and with less warning than the IRS. Where the IRS is required to send you two notices and give you at least 30 days before beginning wage garnishment, many state agencies operate on tighter timelines and with fewer formal steps in between.
Some states, including California, New York, and Georgia, are known for initiating wage garnishments or suspending professional and driver’s licenses with very little notice. Unlike the IRS, which has a more standardized collection process, each state writes its own rules, and some of them are aggressive.
There’s another factor that catches people off guard: your state can reach into your federal refund. Through the State Income Tax Levy Program (SITLP), participating state agencies can intercept your federal tax refund to cover outstanding state balances. Per TurboTax, this happens at the federal level before your refund ever reaches your account. So if you’re counting on a federal refund to help you pay your state bill, there’s a real chance the state gets it before you do.
For all of these reasons, when both balances are new and no collection has started yet, financial and tax professionals generally recommend addressing your state balance first, or at least simultaneously.
When to Prioritize the IRS Instead
There are situations where your federal balance has to come first.
If the IRS has already sent you a Final Notice of Intent to Levy, you have 30 days to respond before enforcement begins. That clock does not stop while you’re working on your state bill. Missing that deadline can result in wage garnishment, bank levies, or property seizure.
Similarly, if the IRS has filed a federal tax lien against your property, that lien affects your credit and your ability to sell or refinance assets. Resolving the lien — or getting into a formal agreement that protects you — may take priority over the state balance depending on how far along the federal process has gotten.
If the IRS is further along the collections timeline than your state agency, pay attention to the sequence of IRS notices you’ve received and act accordingly.
The Rule That Applies to Both
Regardless of which you pay first, one rule applies universally: respond to every notice. Ignoring a notice from either agency does not pause the process — it accelerates it. Every unanswered notice moves your account further along the collections timeline, and the options available to you narrow as that happens.
Both the IRS and most state agencies offer payment plans, and both will generally work with taxpayers who reach out proactively. The window for those conversations is wider before collection has started than after.
What Your Options Look Like for Each
Federal (IRS):
Installment Agreement — Set up a monthly payment plan. The failure-to-pay penalty drops from 0.5% to 0.25% per month while a plan is active.
Offer in Compromise — Settle for less than the full amount owed if you meet eligibility requirements. The IRS reviews your ability to pay, income, expenses, and assets.
Currently Not Collectible (CNC) Status — Temporarily pauses IRS collection activity if paying would prevent you from covering basic living expenses.
Penalty Abatement — Request removal of penalties for qualifying taxpayers, which also reduces the interest accruing on those penalties.
State:
Each state handles payment plans and relief programs differently. Colorado, Kansas, and Ohio all have installment agreement options through their respective Departments of Revenue, but eligibility requirements, timelines, and the willingness to negotiate vary significantly by state. Your state’s Department of Revenue website is the starting point for understanding what’s available to you.
The Bottom Line
If neither has started collections, start with your state since they tend to move faster and give you less room to maneuver. If one agency is already in active collections, focus there first while keeping the other from escalating.
The most important thing is not to ignore either one.
If you’re looking at balances to both the IRS and your state and you’re not sure where to start, that’s exactly the kind of situation Boxelder’s team works through every day. We help clients understand what they actually owe, which agency needs attention first, and what resolution options are available for both.
