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.