If you are behind on your taxes and you are one of the 16 million Americans who are self-employed, you may be wondering, “Can the IRS garnish 1099 wages?” Unfortunately, the federal government can garnish almost any type of income, including 1099 wages. However, there are steps that the IRS must take before they can garnish your 1099 income. And there are restrictions which limit how much the IRS can take.
Here’s what you need to know.
Can the IRS garnish 1099 wages?
Yes, the IRS can garnish 1099 wages. But to do so, the IRS must first follow certain protocols. Typically, it takes five notices before the IRS is allowed to levy your income. Here is what needs to happen.
- A taxpayer fails to pay their taxes or set up another payment arrangement.
- The IRS assesses the taxes owed.
- The taxpayer receives a Notice and Demand for Payment. You will probably get a CP501 Notice as a reminder.
- At least thirty days before the levy, the IRS sends a Final Notice of Intent to Levy and Notice of Your Right to a Hearing.
Once a levy is issued, the IRS can seize your property to cover your tax debt. This puts your wages, bank accounts, real estate, and more at risk.
The good news is the IRS has reduced the number of levies enforced over the last few years. However, the overall tax collection has increased thanks to IRS tax relief programs.
Does IRS notify you before garnishing 1099 income?
The IRS will typically send five notices before levying your income. Click on the links below to learn more about each notice.
- CP14 (Notice of unpaid taxes)
- CP501 (Reminder of unpaid taxes)
- CP503 (Second reminder of unpaid taxes)
- CP504, CP 90, or Notice CP297 (Notice of Intent to Levy)
- Letter 1058 or LT11 and other letters (Final Notice of Intent to Levy and Notice of Rights to Appeal).
There are other notices and letters the IRS uses, but these are some of the most commonly used.
How does 1099 wage garnishment work?
The IRS will reach out directly to the client that sent you your 1099. Your client is responsible for contacting you to fill out a form that states your number of dependents and filing status. Then they send that info to the IRS, which will calculate how much of your income is exempt from the levy.
At this point, your client must send all or a portion of your earnings to the IRS to repay your outstanding tax debt. You’ll receive whatever earnings that the IRS deems exempt, and the rest will be sent to the IRS. However, if you have another source of income that covers your exempt amount, the IRS may seize all of your 1099 wages.
Note that the IRS does not require a judgment to garnish your wages. Further, it can take more than the average 25% that most creditors can take.
But just how much can the IRS take from your paycheck?
How much can the IRS garnish?
The IRS can levy any amount that exceeds your exempt amount for the year. Your exempt amount depends on your filing status and the number of dependents you have.
For example, in 2020, a person filing as ‘Single” with two dependents would have an exempt amount of $1,749.99 per month. Anything over that would be sent to the IRS. On the other hand, a person who is “Married filing jointly” with two dependents would have an exempt amount of $2,783.33 per month.
To find your exempt amount, see the Tables for Figuring Amount Exempt from Levy on Wages, Salary, and Other Income.
How much of my 1099 should I save for taxes?
To prevent yourself from owing more than you can afford in taxes, it helps to save the proper amount throughout the year. Look up tax brackets for the year and estimate which one you will fall under.
For example, if you are a “Single” filer in 2020 and you make $85,000, your tax rate would be 24%. So you should save 24% of each payment for taxes (plus your state income tax rate). If you expect to owe more than $1,000 in tax by the end of the year, you’ll need to pay your taxes quarterly. Breaking them up by quarter can help you stay up to date and avoid a big bill at the end of the year.
All self-employed workers should pay estimated taxes four times a year (on the 15th of January, April, June, and September). Read this article for more information on the tax return due dates.
Frequently asked questions about wage garnishment
Can the IRS take your home?
A levy authorizes the IRS to seize any type of real or personal property that you own or have an interest in. This can include your house, your car, and your personal belongings.
If the IRS garnishes my wages, will they take my tax refund?
If your wages are being garnished, the IRS will likely keep your tax refunds, too. They will continue to do so until your debt is settled in full. Your tax refunds will likely be taken even if you are paying off an installment agreement.
Can you claim wage garnishment on your taxes?
Currently, there is no tax deduction for those who have had their wages garnished.
How to get a levy released
Do you already have a levy and want to get it released? The first thing to do is to contact the IRS. The IRS will release a levy for many reasons, including:
- The levy caused economic hardship.
- Releasing the levy will help you pay your taxes.
- You agreed to an installment plan.
- The collection period ended before the levy was issued.
In general, the IRS is willing to work out deals with taxpayers. But to get a good outcome, you’ll need to keep in contact and follow through.
It is possible to negotiate the release of a levy directly with the IRS. However, you may want to call in an expert. A professional tax relief firm can have your back and relieve some of the stress. Hire them to contact the IRS on your behalf, represent you, and find a resolution that’s in your best interest.
SuperMoney makes it easy to compare the fees, customer care rating, and certification of the best tax relief firms in your state. Review and compare leading tax debt relief firms below!
Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar, Interest.com, Commonbond, Bankrate, NextAdvisor, Guardian, Personalloans.org and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.