Wage Garnishment

It can happen in the blink of an eye. One day you look at your paycheck and it’s suddenly much lower than you’re accustomed to. You think it must be an error or wonder if too much has been withheld. While these seem to be the most likely situations, neither is true. After reviewing your paycheck a little more, you realize part of your earnings have been taken by the IRS through a process known as wage garnishment.

What is Wage Garnishment?

When most people first realize their wages have been garnished by the IRS, they ask “can they really do that?” While it’s not the first method they resort to, it’s a tool frequently used when taxpayers fail to pay their taxes over a prolonged period of time.

Wage garnishment is a procedure used by creditors and the IRS to recoup money they are owed by legally taking a portion of your paycheck right off the top. They take a small – yet often significant – amount each time you receive your paycheck until the debt is satisfied. While wage garnishment is certainly unsettling, it really shouldn’t come as any surprise. It is only used after all other options have been exhausted

According to Eva Rosenberg, a Los Angeles tax accountant, garnishments require a court order and are only put into effect after considerable effort has been made to reach out to the debtor. However, when it starts, it can be very serious. “Ignore the IRS and your wages will be garnished. They know where you live, where you work, and where your bank account is.”

And while private collectors must receive a court order to go after your wages – and are limited to only your paycheck – government creditors don’t need a court order. Additionally, they can garnish things like Social Security, veteran’s benefits, and other government money.

 The IRS and Wage Garnishment

The good news for those that owe back taxes and wish to avoid wage garnishment is there are plenty of options to deal with current tax obligations. By taking advantage of these, you’ll never have to worry about the IRS tapping into your income stream.

The IRS usually starts the process by mailing you a written letter explaining the amount you owe. It will itemize all of the taxes, penalties, and interests for you to see and provide a deadline or due date by which the balance must be paid in full. If the balance still remains after the due date passes, the IRS then determines how to best proceed. Possibilities include placing a lien on your property, keeping future tax refunds, seizing assets, and garnishing wages.

While private creditors are instructed by federal law that they can only take a certain amount from your wages, the IRS abides by a completely different set of rules. The tax code only limits what they are required to leave – usually enough to pay for basic living necessities.

How to Avoid Wage Garnishment

If wage garnishment has started or you fear it may be around the corner, there are ways to alleviate the issue before it becomes an even more serious problem. Here are a few options for avoiding or eliminating wage garnishment:

• Satisfy the debt. Obviously, the easiest thing to do is pay off the debt. Think about all the possibilities and do anything you can to get the money needed to send the IRS away. This may include borrowing money, taking out a loan, or selling assets.

• Make an offer in compromise. While an offer in compromise isn’t the easiest thing to get, it is certainly an option (and should be pursued). If the IRS has been on your trail long enough, they may settle for less than you owe them. Make an offer they absolutely cannot refuse.

• Set up an installment plan. An installment plan is great for a couple of reasons. First off, it lowers the amount you owe each month by spreading payments out over a period of time. Second, the IRS grants you three years to pay off your debt from the beginning of the agreement. It’s a great way to buy time and seek out other options.

• Leave your job. It may sound drastic, but quitting your job is an option. This is commonly used by people who were ready to leave anyway and wage garnishment provides the perfect excuse. Since it is exclusive to an employer, the wage garnishment process must restart when you find another job. This can sometimes take months.

Regardless of what you choose to do, it is best to seek out the help of a tax professional when dealing with the IRS. They offer experience and expertise that’s very valuable in tough situations.

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.