Know all About IRS Wage Garnishment Aka Wage Levy

There is a big difference between IRS tax liens and IRS tax levies. Tax liens are public notices declaring that an individual or a business owes money to the IRS. Tax liens do not result in the seizure of money or other assets. On the other hand, the IRS levy process does involve seizing real personal property to settle back taxes owed. Typically, the IRS issues levies upon a taxpayer’s financial accounts such as a bank or stockbroker or on wages or other income. The IRS issues over four millions levies each year. The IRS can levy a taxpayer’s wages or other income. IRS wage garnishment and IRS wage levy are similar names for the same IRS levy collection tool.

After filing a notice for demand for payment, the IRS then issues a second notice of intent to levy. This second notice is where the IRS again demands payment and can inform the taxpayer of the intent to garnish wages or any other income sources. The taxpayer has 30 days to appeal the garnishment. After the 30 days have elapsed, the IRS may begin garnishing the taxpayer’s wages or other income. The IRS may also issue a tax lien before levying assets.

Who Does The IRS Issue Wage Garnishments or Wage Levies On?

The tax code allows the IRS to take a portion of a taxpayer’s employee wages or other income. The IRS can also garnish income that a taxpayer earns as an independent contractor or self-employed individual. An independent contractor is a person who performs services for a company or individual without receiving supervision or direction. An independent contractor typically provides their own tools and decides how to complete a job.

A portion of each paycheck or income check is free from an IRS levy. The tax code controls the amount the taxpayer keeps. The formula adds the taxpayer’s tax return exemption amount to the taxpayer’s standard deduction amount. The IRS then revises the garnishment guidelines annually. If the taxpayer’s income is low or the total exemption amount is too high, the taxpayer’s earnings may be freed from levies. Many taxpayers can’t really survive on the minimal IRS exemption amount.

For the independent contractor, the IRS issue a special garnishment known as an Accounts Receivable levy. The IRS will send a notice of levy to any individual or business that is believes owes the taxpayer money for services paid. In these cases the independent contractor has usually received a 1099 for services paid.

Where Does the IRS Send Wage Levies?

When the IRS sends a notice of levy on wages to a taxpayer’s employer, the employer’s payroll department then sends the taxpayer a Statement of Exemptions. The taxpayer provides requested information on the back of this notice. The taxpayer fills in the spouse’s name, the number of exemptions and then returns it to the employer. From this information, the IRS calculates the wages which are free from levy. The IRS requires the employer to send in the form within three days of receiving it. The IRS will allow only one exemption if it receives the form after the deadline. This will increase the levy amount, even if the taxpayer was entitled to more exemptions. The taxpayer should simultaneously fill out an updated new IRS form W-4.

How Is the IRS Wage Garnishment Calculated?

The IRS levy formula adds the taxpayer’s filing status standard deduction amount to the total claimed exemptions amount. The formula then divides that total amount by 52. The result decides the amount of wages which are free from garnishment. The resultant non-exempt amount for each pay period goes directly to the IRS. For example, if the taxpayer’s standard deduction is $6100 and the total exemption amount is $3900, these two amounts are added together to get $10,000. After dividing this amount by 52, the resultant weekly amount of $192.31 is free from garnishment with the IRS taking the rest. Depending on wages, filing status and number of exemptions, a range for IRS wage levies is created, which is based on around 30{bf3da7fb6a4d0e0e3790d09a79b980fc065e33e2f3a2d49280f7e95b82f4982b} to 70{bf3da7fb6a4d0e0e3790d09a79b980fc065e33e2f3a2d49280f7e95b82f4982b} of wages or on other income. IRS publication 1494 verifies how much income the IRS will take.
After the IRS sends a wage levy to a taxpayer’s employer, wages are subject to garnishment until the tax debt is paid in full.

What Will Stop an IRS Wage Garnishment?

• Immediately contacting the IRS is the single best course of action. The best time to contact the IRS is immediately on receiving the Demand for Payment or later after receiving the Notice of Intent to Levy. Each notice contains a contact telephone number to call for dealing with the impending levy.
• The taxpayer should then try to negotiate a wage levy release. The taxpayer may also propose to settle the tax debt through an immediate installment payment plan or by asking for time to sell an asset. The taxpayer may even qualify for financial hardship resulting in an immediate release of the levy.
• The taxpayer may also formally appeal the wage garnishment. The taxpayer should use IRS form 12153 to appeal a wage levy and to seek a Collection Due Process hearing. The taxpayer sends the form to the address on the Notice of Intent to Levy. It must be postmarked by the 30-day deadline indicated on the notice.
• Filing an Offer in Compromise will end all IRS collection actions during the process. If the IRS decides that the offer was a delay tactic, they will quickly reinstate the levy. A taxpayer should file an Offer in Compromise only if legitimate financial grounds exist for doing so.
• A bankruptcy filing will also end a wage levy. The decision to file for bankruptcy is complex in nature. The taxpayer should carefully research and analyze the potential for discharge of tax debt. Some taxes are ineligible for discharge in bankruptcy.
• The wage levy does not follow the taxpayer when changing employers. The IRS does not require that it be informed of a job change by either the taxpayer or the employer. In this scenario, the IRS must locate the new employer and issue a new levy. While changing jobs may have the temporary effect of ending a wage levy, the financial effects could be devastating. The taxpayer should never aim for a job change to escape a wage levy.