Wage garnishment for tax debt is more common than you might think. According to the President’s official 2016 Fiscal Year Budget, the federal government collected a whopping $56 million from wage garnishments in 2014 alone. So if you received a notice of wage garnishment, you’re not alone.
This guide will explain what wage garnishment is, how it works, and what you should do if you receive a notice of wage garnishment from the IRS.
What is an IRS wage garnishment?
Wage garnishment is a process of withholding earnings from an individual to repay a debt. In the case of IRS wage garnishments, the debt in question is in unpaid taxes. In other words, the IRS files a wage garnishment to collect money from taxpayers who failed to pay owed taxes. It does so by by requiring their employers to withhold a portion of the taxpayers wages, and send those withheld wages directly to the IRS.
If you receive a notice of wage garnishment, your wages will be withheld until:
- You make other payment arrangements to handle your tax debt.
- You pay your tax bill and all associated interest and penalties in full.
- The IRS releases the tax levy.
How do IRS wage garnishments differ from private creditor wage garnishments?
IRS wage garnishments are not subject to the same laws and regulations as other wage garnishments. The IRS does not, for example, have to obtain a court order to garnish your wages.
Additionally, the IRS is not limited by state and federal garnishment limitations as other creditors are. This means it can leave delinquent taxpayers with very little money to live on.
And unlike private wage garnishments, IRS wage garnishments do not require a court order in order to be legally enforceable.
When does the IRS initiate wage garnishments?
Wage garnishment isn’t the IRS’ first step in pursuing the money they’re owed. Here is the standard process which may lead to wage garnishment:
- The IRS assesses your tax liability and demands payment for it.
- You ignore the notice demanding payment, or refuse to make arrangements to pay your back taxes.
- The IRS sends you a tax bill entitled “Final Notice of Intent to Levy and Notice of Your Right to a Hearing”.
- 30 days pass without you taking any action to make payment arrangements with the IRS.
Only after these steps can the IRS can begin the levy process and compel your employer to withhold your wages.
How should you respond to an IRS wage garnishment?
If you receive notice of an IRS wage garnishment, it is important to contact the IRS right away to discuss your options. The IRS doesn’t want to garnish your wages. Wage garnishment is costly for the government to maintain, and it can create difficulties for the IRS, you, and your employer. So if you reach out and show willingness to work together on a payment solution, you may be able to avoid wage garnishment entirely.
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.
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.
What does my employer have to do to facilitate wage garnishment?
If your employer receives a notice of levy against you, they’re required by law to comply with the IRS instructions. There are no exceptions to this legal requirement.
The IRS generally uses Form 668-W(ICS) or 668-W(C)DO to levy an individual’s wages, salary, or other income. Once your employer receives one of these forms, they can wait one pay period before they start sending a portion of your wages to the IRS.
This grace period allows you to make alternate payment arrangements, if possible. Upon making alternate payment arrangements, you can also take advantage of this time to request that the IRS release the levy.
The IRS will also send your employer Publication 1494. This document explains how to determine how much of your paycheck to pay you, and how much to withhold for the IRS.
Your employer will then provide you with a Statement of Exemptions and Filing Status to complete and return within three days.
How much can the IRS withhold from my paycheck?
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.
The IRS bases its guidelines on what it deems will leave you enough money for regular living expenses. However, in spite of those limitations, it is possible for them to garnish as much as 70-80% of your pay. They will also take any extraneous income supplements, i.e. bonuses or commissions.
That’s why it’s essential to contact the IRS to make other payment arrangements if possible. Wage garnishments can upend your lifestyle and shatter your budget — you should pursue alternatives if possible.
If you’re not sure how to set up an alternate payment plan, consider hiring a tax attorney to help you negotiate with the IRS.
How can I stop an IRS wage garnishment?
The IRS does not want to have to deal with wage garnishment any more than you do. As such, there are several ways to stop wage garnishment even after the process starts.
Here are some methods for stopping wage garnishment:
- Pay your tax debt in full.
- Enter into an installment agreement with the IRS to pay all taxes due.
- File for an offer in compromise.
- File for bankruptcy. This won’t release you from having to pay your tax debt in full, but it can stop the IRS from garnishing your wages for collection purposes.
- Quit your job. But this is a short-term solution. Even if you have no wages to collect, the IRS can still seize your property to collect the debt — and unemployment leaves you with no income to replenish the loss.
What should you do if wage garnishment creates hardship for you?
Wage garnishment is hard for everyone, but you must meet the IRS’ definition for hardship in order to make an appeal.
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 the IRS determines that the wage garnishment is, indeed, creating an economic hardship for you, they may release the levy. However, this does not mean that your tax debt is forgiven. You will still have to pay your tax debt even after the IRS releases the levy.
How can I avoid wage garnishment?
The best way to avoid a tax levy or IRS wage garnishment is to file and pay your taxes when due. If that is impossible, you can:
And remember, respond to any and all notices you receive from the IRS as soon as possible. Even if you cannot pay your tax debt, it is still imperative to contact the IRS to discuss all your options.
Who can help me with IRS wage garnishment?
If you are uncomfortable dealing directly with the IRS, you may find it helpful to hire a tax attorney to help. These professionals are well versed in handling all tax related issues. Their experience with tax law lets them maximize results in negotiations with the IRS. They can also prevent you from sharing any sensitive information with the IRS that might trigger an audit.
If your wages are already being garnished, a tax attorney may be able to put a hold status on your garnishment while they to negotiate a settlement. This means that you would still have access to your funds as long as the negotiation was in progress.
By analyzing your financial, tax, and employment situation, a tax attorney can help you determine the best type of settlement for your situation. After reaching a settlement, you can once again enjoy good standing with the IRS.
Ready to get started? Compare and contrast top tax relief companies here. Or if you’d rather negotiate on your own behalf, click here to educate yourself about the tax relief options available to you.