Owing the IRS money is stressful enough, but you might also worry about your employer finding out about your tax debt. Depending on the field you work in, whether you’re in a licensed profession, and where you are in the collection process, your employer probably won’t find out about your tax debt. However, there are exceptions, particularly if the debt escalates and results in wage garnishment.
If you’d like to learn more about how this might occur, you can continue reading and contact Damiens Law online or by calling 601-957-9672.
Key Takeaways
- Your employer isn’t automatically notified when you owe the IRS money.
- In most cases, employers become aware of IRS debt due to wage garnishment.
- Wage garnishment doesn’t happen immediately—it comes after months of receiving IRS collection notices.
- Responding to IRS notices promptly can help you avoid wage garnishment and keep your tax situation private.
Your Tax Debt is Private—Usually
In the vast majority of situations, tax debt is kept confidential between the IRS and the taxpayer. Employers aren’t automatically notified when their employees owe the IRS money. This is because the IRS typically communicates directly with taxpayers, not through their employers.
One main exception is wage garnishment. Once your tax debt has escalated to this point, keeping it private from your employer is significantly more difficult.
Wage Garnishment and Your Employer’s Role
If your tax debt is left unaddressed for too long, the IRS may attempt to enforce collection by using a wage levy. This is where the IRS takes a portion of your paycheck each pay period and uses that money towards your tax debt.
When a tax collection process gets to the tax levy stage, the IRS often garnishes wages and/or freezes bank accounts before seizing other types of property (like a vehicle or real estate). Therefore, you may be closer to losing your wages to the IRS than you think.
Before garnishing your wages, the IRS sends several notices to inform you of your tax debt and give you a chance to resolve your noncompliance. These notices include:
- CP14: One of the first notices the IRS sends, indicating an outstanding tax balance.
- CP501: A reminder notice that you have unpaid taxes with the IRS.
- CP503: Another reminder notice telling you to pay your unpaid tax bill.
- CP504: A final reminder notice before the IRS starts the wage levy process.
- LT11/Letter 1058: A notice informing you that the IRS will begin levying your property unless you take action within 30 days.
Generally, there are about six to eight weeks between IRS collection notices. This gives the taxpayer time to pay or make arrangements, and it gives the IRS time to account for any payments that have been received. So by the time you reach the last notice, several months have likely passed since your first notice.
While each of these notices warrants immediate action, the last one is your last chance to resolve any outstanding tax issues before wage garnishment and other levies. LT11 or Letter 1058 arrives via certified mail, and if you do not respond by the due date in the letter, the IRS has legal authority to garnish your wages.
Once the IRS has served you with proper notice and waited out the 30-day waiting period, they can levy your wages. They send Publication 1494 to your employer, and your employer gives you a Statement of Dependents and Filing Status that you must return. This determines how much of your wages you’ll get to keep. Your employer will also receive Form 668-W informing them of the wage levy and the steps your employer needs to take in order to comply.
While this doesn’t tell your employer how much you owe, it does let them know that you have tax debt—and that you have ignored it long enough for the IRS to move forward with wage garnishment.
Other Ways Your Employer May Learn About Your Tax Debt
Although wage garnishment is the most common scenario in which your employer finds out about your tax debt, there are other situations that fall into this category.
Voluntary Payroll Agreements
IRS Form 2159, Payroll Deduction Agreement, allows your employer to withhold part of your wages to send to the IRS as part of your plan to pay off a tax debt. Because this agreement requires your employer’s approval, there’s no way to prevent them from finding out about your tax debt.
Background Checks
Some employers routinely run background checks on their new hires. If you apply for a job and have a federal tax lien on your assets, this may turn up on your background check. Federal tax liens don’t show up on credit reports anymore, but they’re public record, and potential employers may find them during certain types of background screening.
These discoveries often occur in careers that put individuals in charge of finances or require them to handle significant amounts of money. As a result, employers worry that employees with large amounts of debt may be at greater risk of committing embezzlement or fraud.
This information also comes up if employers request a tax compliance report. Employers can ask potential employees to submit tax compliance reports to see if they file and pay taxes on time. This report will indicate if you have unpaid taxes with the IRS.
Security Clearances and Professional Licensing
If your career path requires you to receive a security clearance or professional license, your tax debt may come up during the application process. If you need a security clearance to have access to sensitive information, but you also have tens of thousands of dollars in tax debt, employers worry that you’re more susceptible to being blackmailed, accepting a bribe, or otherwise compromised. Similarly, some professional fields require tax compliance as part of licensure.
Federal Workers
Federal workers are held to a high standard for tax compliance; their role within the federal government means that they are expected to serve as an example for others by fulfilling their tax obligations. If federal workers fall behind on filing or paying taxes, they may receive LT36, which essentially warns them to catch up. Should their tax issues go unresolved, the IRS may notify their employing agency.
What Employers Can (and Can’t) Do If They Find Out
If your employer finds out about your tax debt, don’t panic. There are laws in place to protect you, and most employers aren’t in a rush to get rid of employees simply because of some unpaid tax debt.
Remember, unpaid taxes (and unfiled returns) are more common than you think. Millions of taxpayers struggle with these issues at some point in their lives, and employers aren’t generally concerned unless it affects their day-to-day operations. However, this isn’t necessarily the case if you work in a financial setting or a role that requires security clearances. In that case, it’s important to address your tax debt promptly to avoid it becoming an issue.
Many taxpayers facing tax debt worry that their employers will fire them once their wages are garnished. Title III of the Consumer Credit Protection Act prohibits employers from firing employees because of one wage garnishment. But if you have multiple wage garnishments at the same time, that can be harder to navigate.
Worried about your tax debt becoming workplace gossip? Spreading employees’ private financial information is a good way to wreck a company’s reputation and risk lawsuits. In most cases, this information stays confidential within HR and payroll departments.
Smaller companies tend to have slightly more relaxed rules and regulations, and it’s possible that internal conversations about your garnishment will occur. No one wants their private tax information made public, which is why it’s important to respond quickly to all IRS notices.
Keeping Your Tax Debt Private: Your Next Steps
If keeping your tax debt away from the prying eyes of your employer is a top priority for you, it’s important to be proactive about your tax debt. We recommend:
- Acting quickly: It’s tempting to ignore the notices that come in the mail and hope that you can hold the IRS off long enough to save up what you need to pay your tax debt. But the sooner you take action, the more options you have available to you.
- Looking into relief options: The IRS has a range of payment options for those who cannot pay in full right away. Installment agreements, offers in compromise, Currently Not Collectible status, and partial payment installment agreements may all be options to consider. These payment options can help you avoid garnishments that reveal your tax debt to your employer.
- Communicating with the IRS: If you don’t communicate with the IRS, they have to assume that you’re not addressing your tax debt. Reaching out to them, either directly or with the help of a tax professional, can help you take advantage of relief options and avoid aggressive collection actions.
- Working with a tax professional: When you work with a tax professional, they can figure out exactly where you are in the collection process, communicate and negotiate with the IRS on your behalf, and work toward a resolution that protects your privacy and financial stability.
Your employer typically won’t know that you owe the IRS money. That can change when your debt escalates to garnishment or your debt keeps you from getting a security clearance or professional license. Don’t let it get that far—let us help you tackle your tax debt and get you back into compliance. Call Damiens Law at 601-957-9672 or send us a message online to set up a time to discuss your tax situation.
Frequently Asked Questions
Will my boss know if I’m on an IRS payment plan?
No. A payment plan is between you and the IRS, and your employer won’t be notified. The one exception will be if you choose to have payments made from your paychecks.
Will the IRS call my employer directly?
No. This is a common threat made by scammers who want to scare people into sending them money. The IRS only contacts your employer through the official levy process if it garnishes your wages.
If my wages are garnished, does my employer know how much I owe?
No. The IRS just tells them how much to withhold per paycheck, not how much you owe.
How much can the IRS take from me with a wage levy?
There’s no limit on how much the IRS can take, but the IRS must leave a certain amount of money in each paycheck. This exemption amount depends primarily on your filing status and the number of dependents you can claim. You can anticipate the IRS taking anywhere from 25% to 50% of your disposable income from each paycheck.
How can I keep my employer from finding out about my tax debt?
Be proactive about your tax debt by addressing it as soon as you receive a collection notice. Whether that’s paying in full, setting up a payment plan, requesting an offer in compromise, or discussing your options with a tax attorney, acting quickly is your best move.
Sources:
https://www.irs.gov/individuals/tax-compliance-report
https://www.irs.gov/individuals/understanding-your-cp14-notice
https://www.taxpayeradvocate.irs.gov/notices-from-the-irs/page/6/
https://www.irs.gov/businesses/small-businesses-self-employed/information-about-wage-levies
https://www.irs.gov/pub/irs-pdf/f2159.pdf
https://www.irs.gov/taxtopics/tc202
https://www.irs.gov/irm/part5/irm_05-014-010
https://www.irs.gov/pub/irs-pdf/p4852.pdf
https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/garn01.pdf
https://www.irs.gov/businesses/small-businesses-self-employed/information-about-wage-levies
https://www.irs.gov/pub/irs-pdf/p1494.pdf
