Wage garnishment is a last resort. That means that if the IRS or a creditor is garnishing your wages, you’ve already missed several warnings. When you fail to pay your taxes, the IRS provides numerous notices in the mail from your creditors. Debt collectors make phone call after phone call to pressure you into paying what you owe. If after months of this treatment, you still don’t pay your taxes, the IRS will resort to garnishing your wages.
Is the IRS or a private creditor garnishing your wages? Not sure what you can do to release the hold on your income, or worried that you’ll lose your job? Good news: depending on your circumstances, you may be able to remove the garnishment altogether.
Read on to learn what wage garnishment is, what you can do to avoid it, and (if you’re already subject to it) how you can get it removed.
What is wage garnishment?
Wage garnishment is the seizure of a chunk of your paycheck before you receive it.
IRS wage garnishment is one of the IRS’ many strategies to recover their money when a taxpayer fails to pay their taxes. In this way, the IRS can ensure that they will get the money that you owe them, without requiring your participation in the process. Wage garnishment is also performed by private creditors when borrowers renege on their agreement.
Although wage garnishments from private creditors require a court order to be legally enforceable, the IRS is not so limited. It can garnish your wages without any court action. Also unlike private garnishment, the IRS is not bound by state and federal garnishment limitations. This means it can leave delinquent taxpayers with very little money to live on.
How much can the IRS or a private creditor take from my paycheck?
The immediate effect of a wage garnishment is reduction in your take-home pay. The degree of that reduction depends on how much you owe, the nature of your financial obligation, and your income.
Wage garnishments pull from your “disposable income” – your take-home pay. It is also possible to have more than one wage garnishment imposed against you. But even with multiple wage garnishments, you will never lose your entire paycheck. And state and federal laws limit wage garnishments performed by private creditors.
IRS wage garnishment
If the IRS levies (seizes) your wages, part of your wages will be sent to the IRS each pay period until:
- You make other arrangements to pay your overdue taxes,
- The amount of overdue taxes you owe is paid, or
- The levy is released.
If you owe both federal and state taxes, both agencies may garnish your wages. Publication 1494 contains a chart to help you figure out what portion of your wages the IRS will garnish. The percentage of your wages that you’ll keep during an IRS garnishment is based on the standard deduction and the number of personal exemptions you can claim.
An IRS garnishment leaves you enough money for regular living expenses. However, in spite of that limitation, it is possible for the IRS to garnish as much as 70-80% of your pay. They will also take any extraneous income supplements, i.e. bonuses or commissions.
Wage garnishments for child support orders are among the harshest. These administrative wage garnishments do not require a court order, and often seize over half your disposable income. If you’re already supporting dependents, you will not have to pay more than 50% of your disposable income. But if you are single with no other dependents, garnishments for child support can extract up to 60% of your disposable income. And if you’re more than 12 weeks behind on your payments, it can add another 5% to the wage garnishment.
Falling behind on federal student loan payments can also leave you vulnerable to administrative wage garnishment. In these cases, they will garnish 15% of your disposable income or the amount of your disposable income that exceeds 30 times the federal minimum wage, whichever is less. Private student lenders must generally seek a court order to garnish your wages.
Will I lose my job?
Federal law prohibits your employer from firing you on the basis of a single wage garnishment. But if more than one creditor imposes a wage garnishment, or if a single creditor imposes multiple garnishments, federal protection no longer applies.
State laws protecting workers against dismissal due to wage garnishment may be stricter than those of the federal government. For some states, state law protects workers that have up to 3 garnishments attached to their paychecks (Department of Labor).
What’s the difference between wage assignments and wage garnishments?
Wage assignments let creditors collect overdue payments directly from your wages without obtaining a court order. But unlike wage garnishments, you must agree to wage assignments in advance. However, these agreements are frequently hidden in fine print. Federal law and many state laws prohibit wage assignments in most consumer contracts.
If your contract allows you to revoke your authorization for wage assignment at will, then they are generally legal. Likewise, loans that are set up with payments taken directly from your paycheck also usually allow wage assignments (Nolo).
Why is my bank account frozen?
If you are not gainfully employed, non-secured creditors may get a court order to freeze your bank account. But thanks to a federal law passed in 2011, exempted funds such as Social Security and disability payments that are deposited directly into your bank account cannot be garnished.
Some states also protect a total of $2,500 from being frozen in bank accounts that contain exempt funds, even if exempt funds are only a fraction of this amount.
However, this protection does not apply to garnishments for back taxes. If the IRS garnishes your wages after your failure to pay your taxes, your bank account can be frozen without a court order.
Can I get rid of wage garnishment?
One certain way to get rid of any wage garnishment is to bring your account to a current status. In most cases, that means paying off your debt in full.
IRS wage garnishment
If the IRS is garnishing your wages, investigate the tax relief programs that the federal government offers for such circumstances. The IRS Fresh Start program offers tax reliefs solutions to help you avoid wage garnishment. By setting up an installment agreement, you can pay your debt in affordable monthly payments. Or if you qualify for an offer in compromise, you may be able to reduce your debt entirely. To learn more about the tax relief solutions available to you, read about the IRS Fresh Start program.
You can also get an IRS wage garnishment removed if it is creating a hardship for you. However, it must meet the IRS’ definition for hardship. According to the IRS, “An economic hardship occurs when we have determined the levy prevents you from meeting basic, reasonable living expenses. In order for the IRS to determine if a levy is causing hardship, the IRS will usually need you to provide financial information so be prepared to provide it when you call.” If you go this route, be prepared to provide evidence of your income and your expenses.
Private creditor wage garnishment
Some private creditors may also agree to a payment plan. This goes doubly if you can pay at least as much as the amount they’re deducting from your paycheck under the garnishment. Be proactive and make a suggestion, and you may be able to set something up that leaves your paychecks under your own control.
You may also file an appeal to have a private garnishment overturned. If your bank account is frozen, you can petition to have the freeze lifted if the amount of money in your bank account falls under specified limits.
If your income tax status is head of household and you provide at least 50% support for a child or other eligible dependent, you may shield most or all of your income from garnishment. Your state’s laws may provide stronger protections against wage garnishments for heads of household. To obtain that protection, file a head of household exemption.
How does bankruptcy affect wage garnishment?
Filing Chapter 7 or Chapter 13 bankruptcy protects your bank account and wages from wage garnishment through the automatic stay provision.
If a garnishment is already in place, filing for bankruptcy immediately releases the garnishment. You can inform your creditors individually to have garnishments lifted before notification is made (Nolo).
In the case of garnishment for back taxes, bankruptcy won’t release you from having to pay your tax debt in full. In the short term, though, it can stop the IRS from garnishing your wages. However, don’t forget that bankruptcy seriously damages your credit score. Be sure to assess all of your options before you go this route.
How can I prevent wage garnishment?
The best way to deal with wage garnishment is to prevent it from happening in the first place. The IRS only uses garnishment as a last resort, and will gladly negotiate payment agreements that allow you to avoid it altogether.
So be sure to contact the IRS right away when you receive a notice of delinquent taxes. If you’re proactive and cooperative, you can stave off wage garnishment.
If you have previously maintained a good payment record, private creditors will also work with you to restore your account to current status without resorting to wage garnishment.
Who can help me with wage garnishment?
Negotiating with the IRS can be difficult. If you need someone in your court to negotiate on your behalf, you may want to seek out a tax relief attorney. Their experience with tax law lets them maximize results, and they can help you avoid sharing any sensitive information that might trigger an audit. They may even be able to put a hold status on your garnishment while they negotiate a settlement.
Looking for a good tax relief firm to help you find the best possible solution to your wage garnishment problem? Compare and contrast top tax relief companies here. Or if you need debt help to settle a garnishment with a private creditor, you can assess top debt relief firms here.