Overview

When a state refers unpaid taxes to a private collection agency, the collector contacts you to recover the debt. Because these are private firms, the Fair Debt Collection Practices Act (FDCPA) typically covers them and limits what they can do. Still, states have different procedures and relief programs—so your best first step is to verify who you’re dealing with and what the state’s own rules allow.

Verify identity and the debt (first 30 days)

  • Ask for written verification. Under the FDCPA you have 30 days after the collector’s first contact to request validation of the debt. Ask the collector to provide: the amount, the original creditor (your state tax agency), the tax years involved, and proof the agency has authority to collect on the state’s behalf (a contract or referral notice). See CFPB guidance on debt validation for model requests. (Consumer Financial Protection Bureau)
  • Send the request by certified mail with return receipt and keep copies of every letter, voicemail transcript, and payment record.

Limit collector misconduct

Collectors cannot legally harass you, use threats, misrepresent the amount or legal status of the debt, or call at unreasonable hours. Common illegal practices include threatening arrest (tax debt is civil), using profane language, or contacting your employer about tax details beyond garnishment notices. If a collector crosses the line, document it and consider filing complaints with the CFPB, FTC, and your state attorney general.

Confirm the state’s role and resolve with the source

  • Contact your state Department of Revenue (or equivalent). Ask whether your account was referred to a private collector, whether the state still accepts payments directly, and what in-state relief options exist (installment agreements, compromise/settlement programs, penalty abatement, or hardship holds).
  • Many states have their own “offer in compromise” or settlement programs; these differ from the federal Offer in Compromise. If you’re unsure which program applies, state DOR customer service can clarify eligibility and protect you from scams.

Negotiate safely: payment plans and settlements

  • Don’t promise payments until you confirm the debt’s accuracy and you know the collector’s authority. If you can pay, ask the collector to put any agreement in writing and request a clear payoff figure that includes fees or interest.
  • Where full payment isn’t possible, negotiate an installment agreement or reduced settlement — but get the state’s approval when required. If the collector says a settlement is final, verify with the state revenue office before sending funds.

Protect wages and bank accounts

Private collectors cannot garnish wages without a court judgment in many states. However, when a creditor has state-authorized enforcement, processes vary. States can pursue administrative garnishment or tax levies using statutory powers. If you receive or expect a garnishment or levy, act fast:

  • Contact your employer and bank for notices and timelines.
  • Seek a hardship review, claim exemptions, or negotiate an affordable plan with the state agency.
  • Read more about options to stop or reduce garnishment in our guide to Relief Options for Taxpayers Facing Wage Garnishment.

Avoid common scams and risky payment methods

Scammers impersonate collectors. Red flags include demands for payment by pre-paid debit card, cryptocurrency, wire transfer, or threats that you’ll be arrested. Real collectors will provide written documentation and allow traceable payments (check, electronic payment to the state, or credit card via an approved portal). If in doubt, call your state revenue department directly using a number from the state’s official website.

Document everything

  • Keep a single folder (digital or physical) with: the collector’s letters, certified-mail receipts, bank statements, payment confirmations, and notes of phone calls (date, time, agent name, and content).
  • These records prove your timeline and protect you if the collector sues or if you need to complain to regulators.

When to involve a professional

Consider hiring a tax attorney, enrolled agent, or a CPA experienced in tax collections if:

  • The collector threatens legal action or garnishment.
  • You have complex tax years, business exposures, or large balances.
  • You’re offered a settlement and want help reviewing or negotiating terms.

Practical sample language: a short debt-validation request

(Use your name, address, and account details; send by certified mail.)

“I am requesting debt validation for the alleged state tax debt referenced in your [date] letter. Please provide the original tax account number, tax years, a copy of the state’s referral authorization to your agency, and a detailed accounting of the balance claimed. Do not contact me again about this debt except in writing until you have provided the requested documentation.”

Follow up if the collector responds. If they cannot validate the debt, insist they stop collection or contact the state revenue office to close the account.

Where to file complaints or get help

  • Consumer Financial Protection Bureau — complaint portal and debt-collector rules: https://www.consumerfinance.gov/ (CFPB covers private collectors under the FDCPA).
  • Your state attorney general’s consumer protection office (search “[Your State] Attorney General consumer complaint”).
  • State Department of Revenue — to confirm account status, set up plans, or request penalty abatement.

Related FinHelp resources

Authoritative sources

Disclaimer

This article is educational and not individualized legal or tax advice. For decisions that affect your assets or legal rights, consult a licensed tax attorney or enrolled agent familiar with your state’s tax laws.

Author background

I have more than 15 years advising taxpayers on collections and tax-resolution strategies, including negotiating settlements and stopping garnishments. My practice focuses on practical, compliance-first solutions that protect finances while resolving tax obligations.