The Truth About IRS Wage Levies & Wage Garnishment
If you owe the IRS money for back taxes, the agency has the right to take funds right out of your paycheck. This is called an IRS wage levy or garnishment and is a very commonly used method for collecting back taxes. Your wages will continue being garnished until your entire tax debt is paid, including interest and penalties. However, there are a number of viable options available to resolve the problem depending on your particular situation and the state of your finances.
Unless you resolve your tax problems with the IRS you will likely be subject to wage levies or garnishments and this is no way to live. Or, you can always to wait for the Statute of Limitations to pass on the tax debt, at which time the IRS can no longer legally enforce collection.
Process, Laws & Rules Governing Wage Levies
The IRS follows a specific process when instituting wage garnishments. There are specific steps that must be taken before your wages can legally be garnished. If these steps are not followed, you can file an appeal and likely get the garnishment released. In order to do this successfully it would be best to consult with an experienced tax professional or CPA for his/her tax help and advice. They know all rules and laws and can ensure that you are properly taken care of if you are receiving threats from the IRS of wage garnishment.
Employer Involvement in Wage Garnishment
When the IRS decides to garnish your wages in an effort to collect your tax debt, it will notify your employer by sending them Form 668-W(C)DO, Form 668-W(ICS) or some other Notice that explains wage garnishment. The Notice will also spell out how much money needs to be deducted from your check.
Once your employer receives this Notice, he/she should provide you with a Statement of Exemptions & Filing Status, which asks for your filing status and how many exemptions you have. You will need to check the box that fits your status, whether you file as a single person, married but filing separately or jointly, filing as head of household, or etc., along with the number of exemptions. This form must be returned within 3 days. If the IRS does not get the form back, it will just assume married status, filing separately and allow just one exemption.
Using this information, your employer will refer to Publication 1494 in determining how much money to withhold from your paycheck. You are allowed to take home a certain amount to cover basic living expenses. As of 2018, single people with just one exemption are allowed to take home $40.96 per day, whereas a married couple filing jointly claiming five exemptions can take home $129.81 per day. Any money that you make over these amounts must be directly sent to the IRS.
If your boss does not send the required amount of money, the IRS will hold the company you work for or whoever is responsible, personally liable. This means that employers in almost all instances comply. You should know that it is illegal for your employer to terminate you due to the wage garnishment.
Types of Income the IRS Can Legally Garnish
The IRS can legally garnish your wages if you owe back taxes. This would include any bonuses and/or commissions earned. However, if you are a self-employed freelancer or independent contractor, they cannot garnish those earnings. If you have rental income and/or money owed to you in accounts receivables the IRS can seize those funds as well as money sitting in your bank account(s) and other assets.
Length of Time the IRS Can Garnish Your Wages
Your wages will continue being garnished until all your back taxes, including interest and penalties, are fully paid. Unless you make other payment arrangements, the IRS will continue garnishing your wages for the maximum amount of time legally allowed. Wage garnishments are a last resort when it comes to collecting outstanding taxes and only starts after the taxpayer has been sent multiple notices with directions on how to make payment arrangements with the IRS. In general, taxpayers are able to pay less monthly or sometimes nothing if they collaborate with the IRS on solving the problem through other options.
How Child Support Payments Affect Wage Garnishment
The IRS will not garnish wages specifically earmarked for child support payments. If child support payments are already being deducted from your paycheck that is taken into account when determining how much money should be sent to the IRS.
If you make child support payments on your own, you need to reach out to the IRS yourself. Get the phone number off the Notice your employer received. You are allowed to keep those funds for child support, but you then cannot claim that child as an exemption.
Short-Term Solutions to Prevent or Lift an IRS Wage Garnishment
If you’ve received a “Final Notice” in writing from the IRS about a levy, this typically means that your bank accounts or wages have not yet been levied, but the IRS intends to.
To be sure, look for the term “Final Notice” on the letter from the IRS. This means that the IRS plans to place a levy on your bank account(s), payments from the federal government or wages unless you take action within a specified timeframe.
Here are a few examples:
- Final Notice Reply Within 30 Days – IRS Letter 1058
- Final Notice of Intent to Levy & Notice of Right to a Hearing – Letter 11
- Final Notice of Intent to Levy – CP90/297 (typically used to levy federal benefits like social security)
Once you’ve received a Final Notice from the IRS of their intent to issue a levy, you must take action within 30 days in order to prevent this. If you don’t contact the IRS within this timeframe to ask for a hearing, they have the right to contact your employer to enact a wage levy or wage garnishment. A wage garnishment will continue in effect until your tax debt is paid in full, you reach a resolution with the IRS, or until the statute of limitations for collecting the debt arrives for the tax years for which the debt applies. Fortunately, there are ways of resolving matters before the IRS issues a wage garnishment or to have it released after the fact.
Deciding on the best resolution in your circumstances would depend on the amount of money you owe in back taxes and your particular financial situation. In nearly all the available options listed below, you would have to be up-to-date on filing all your tax returns. Simply speaking, you would need to file all required tax returns before the IRS would even consider working with you on a tax resolution. If you were facing a wage garnishment it would be wise for you to consult with an experienced tax professional or CPA for their tax help and advice.
There are a number of methods that can be used to temporarily prevent an IRS wage levy or garnishment or for getting it lifted, as follows:
File an Appeal Asking for a Collection Due Process Hearing
A Collection Due Process (CDP) hearing is conducted under the authority of the IRS Office of Appeals. Although it is part of the IRS, the Office of Appeals acts independently and is not part of the collections office that initiated your wage levy. You are within your rights to appeal an IRS tax levy, whether before or after the garnishment is placed. Before the IRS levies someone, they usually notify the taxpayer that they have a right to appeal the levy, except in certain cases.
If you received a Final Notice of the IRS’ intent to levy, you have 30 days from the date on the Notice to ask for a Collection Due Process hearing. If you end up moving forward with the hearing, normally all collection efforts cease, except in cases involving a federal contractor, state refund levies, DET, and cases that are in jeopardy.
The various letters listed above all explain that you have a right to a hearing on the matter. If you ask for a Collection Due Process Hearing within the allowed time period, the IRS cannot legally levy you during the appeals process, which could take several months. Your written request must be postmarked no more than 30 days of the date on your Final Notice.
You would need to complete Form 12153 and mail it to the IRS Revenue Officer handling your case or to the address on your Final Notice. While waiting to hear back from the IRS you should be working with the tax professional or CPA you hired. They would have the expertise it takes to work with the IRS on your behalf to come to a positive resolution.
You will need to offer a “collection alternative” or put forth a legitimate defense, such as a claim of being an innocent spouse or of financial hardship (see below), otherwise your wages will resume being garnished after the IRS issues their determination against you.
You are still allowed to ask for a hearing after the 30-day time period has passed and the IRS may allow it. The benefit of waiting is that the statute of limitations continues to tick down on the timeframe in which the IRS is legally allowed to take steps to collect the debt. Technically, this now becomes what’s called an “Equivalent Hearing.” You can ask for this up to one year after you get your Final Notice of Intent to Levy, although you are not allowed to challenge in court the decision by the IRS Office of Appeals and your wages can still be garnished.
The IRS’ Internal Revenue Manual (IRM) tells employees that they should suspend taking any action on their levy unless “it is determined that it is appropriate,” which is different that what is stated in IRS Publication 660 that says, “a request for an Equivalent Hearing does not forbid a levy.”
Even if you ask for a hearing, it would only be a temporary solution for stopping or releasing the levy. What happens next is that the IRS will assign you a Settlement Officer who will try to settle your case. What you really need is a long-term solution, which you should be able to achieve by consulting with a licensed tax professional like a tax attorney or CPA. This is the kind of tax help you need when you find yourself in a situation like this. He/she is equipped to provide the best possible advice based on his/her experience. This way you should have an excellent chance of a positive outcome so that you can put this entire episode behind you.
Use the Collection Appeals Program
You are legally entitled to appeal your case using the Collection Appeals Program (CAP) both before and after your wages start being garnished by the IRS. This process typically moves along faster than requesting a Collection Due Process hearing. However, CAP is not the way to go if you dispute the amount of tax owed. Furthermore, if you don’t agree with the decision, you cannot take your case to Tax Court. If you want to appeal your case through CAP, you need to submit Collection Appeal Request Form 9423.
Claim Financial Hardship
If your finances were such that you are barely making ends meet, the best route would be to apply for hardship status or get your debt declared uncollectible. In most cases, you would need to provide the IRS with full disclosure on your finances. If you meet the criteria, the IRS will put a temporary hold on all collection efforts until your finances improve. Before proceeding it would be wise to seek tax help from an experienced tax professional or CPA.
Get Your Debt Declared Uncollectible
To have your tax debt declared “uncollectible” you would need to provide the IRS with very detailed information on the state of your finances. But again, as soon as your finances improve you would be subject to collection efforts, including wage garnishment.
File for Bankruptcy
Once you file for bankruptcy your wage garnishment will automatically cease. There are some cases in which a bankruptcy offers a way for a taxpayer to eliminate their old tax debt. But, if you still have tax debt remaining, the IRS is within its rights to resume garnishing your wages once your bankruptcy is over.
When filing for bankruptcy, the court will issue a stay, which will temporarily keep the IRS from garnishing your wages. Bankruptcy can wipe out some tax debt, but in many cases, bankruptcy proceedings do not wipe out any tax debt at all. To have a debt discharged in bankruptcy it must meet a number of criteria. Mainly, the debt has to be income tax debt over three years old.
The main disadvantage of filing for bankruptcy is that it will severely impact your credit history. If your only big debt is unpaid taxes, you should think hard about the repercussions of going into bankruptcy. Before deciding to file for bankruptcy, it is strongly suggested that you seek tax help from a reputable CPA, tax or bankruptcy attorney.
Drastically Reduce Your Income
If what you earn currently doesn’t qualify you for hardship status, you can reduce your hours until your paycheck is below the threshold and is categorized as uncollectable. This option poses some risks because if the IRS cannot legally garnish your wages, they may go after other assets, including your bank account. Furthermore, making less money is not going to solve your tax problems.
Quit Your Job Temporarily
Sometimes taxpayers quit their jobs temporarily. Later on, when they get rehired back, they enjoy a small amount of time before the IRS is notified of their employment status, which will cause the garnishment to resume.
Change Your Place of Employment
This may be an option, but it’s not really a very good one. You can change jobs all you want to avoid having your wages garnished, but as soon as the IRS finds out someone else is paying you, your wages will start being garnished again. This may only be a matter of months, so changing jobs is only going to delay things, not solve the problem.
Long-Term Solutions to Prevent or Lift an IRS Wage Garnishment
Whether you act before or after the IRS garnishes your wages, appealing your case will likely require that a long-term solution be put in place. An experienced tax professional or CPA can arrange for an Installment Payment Plan so that you can pay all or a portion of your tax debt. If you have no money at all, he/she can work with the IRS to help you gain hardship status or have your tax debt declared uncollectible.
There are a number of options to consider that should help prevent your wages from being garnished, as follows:
Pay Your IRS Tax Debt in Full
If you can pay your tax debt in full that will immediately stop your wages from being garnished by the IRS. You might do this by taking out a loan or, if you already have a tax lien, you may be able to refinance the equity in your home and in doing so, subordinate the lien to pay your tax debt.
Agree to Make Installment Payments
An Installment Payment Plan allows you to make monthly payments to pay off your tax liability. The IRS typically requires much less in each monthly payment than it would garnish from your wages per month. If your tax debt is less than $50,000, you can just go online to apply for an Installment Agreement and you will have up to 6 years to pay your tax debt off. The IRS, as of 2018, is testing out the expansion of this program, so if your debt is up to $100,000 you will be allowed up to 8 years to pay off the debt.
You can phone the number on your Final Notice or consult with a reputable tax professional or CPA to work with the IRS on setting you up with an Installment Payment Plan. Once your payment plan has been approved your wages will stop being garnished and you will once again be in good standing with the IRS.
Apply for Innocent Spouse Relief
When two people are married they usually file a joint tax return. In these cases the IRS considers both parties responsible for the tax debt, although there are some exceptions. If you think your spouse or ex is more responsible than you or should be held totally responsible for these taxes, you are entitled to request tax relief through the Innocent Spouse Relief program. To have the best chance of proving your claim of being an innocent spouse it is highly recommended that you obtain tax help from a tax professional or CPA.
Offer in Compromise
One such collection alternative that the IRS would accept that would prevent or lift a wage garnishment would be an approved Offer in Compromise. This is a program that settles the tax debt for less than what the taxpayer actually owes. You would need to request this option, which is rarely approved.
Because this program offers substantial tax relief, the approval process can be very tedious. In order to be even considered for this program you would be required to provide the IRS with very detailed information on your finances. It would be best if you sought tax help from a reputable professional or CPA who has successfully sought this resolution for other clients. The IRS will likely stop garnishing your wages while it considers your proposal for an Offer in Compromise. If your offer were to be approved, you would no longer have to worry about having your wages garnished for these unpaid taxes.
Help for IRS Wage Garnishment Issues
Having your wages garnished is very serious. To prevent this from happening, you should hire a reputable tax professional. We can help you resolve your tax issues with the IRS. Please give us a call at your earliest convenience.