If you owe back taxes and have not worked out a plan with the Internal Revenue Service (IRS) about how to resolve the problem, you may be subject to an IRS wage garnishment. If you are already struggling to make your current tax payments, a garnishment can severely impact you financially. With a garnishment, your income can be siphoned off to pay a creditor, which can include the IRS. Understanding IRS wage garnishments is critical to deal with them and potentially avoid them.
If you would like more information about IRS wage garnishments, consider contacting the experienced and dedicated tax attorneys at Damiens Law by calling (662) 442-4423 or (901) 499-4466.
IRS collection rights
The IRS has significant power and authority to satisfy tax debts taxpayers owe to the agency. The IRS has the right to seize property to satisfy tax debts, including taking any of the following actions:
- Garnishing a taxpayer’s wages
- Taking money in a taxpayer’s bank
- Seizing property, including vehicles, real estate, and personal property and selling it
These actions are called levies. According to the Internal Revenue Code § 6331, the IRS has the right to seize any property or right to property that belongs to a taxpayer who owes delinquent tax. Any property on which there is a federal tax lien can be levied unless the Internal Revenue Code specifically exempts it.
In addition to levies, the IRS can take other collection actions. For example, it can place a lien on property the taxpayer owns. It can levy property other than wages, such as funds in a bank account, personal property, or real property. However, the IRS often uses wage garnishment as an effective way to get the money it is owed for back taxes.
What is wage garnishment?
Wage garnishment is a process in which a creditor gets a court order to take a portion of each of the debtor’s paychecks. A debtor’s employer takes a portion of the employee’s wages and sends them to the creditor. There are specific laws that they and employers must follow, including the Federal Wage Garnishment Law of the Consumer Credit Protection Act. This law generally prohibits most creditors form receiving more than 25% of an employee’s disposable earnings.
What is IRS wage garnishment?
IRS wage garnishment occurs when the IRS is the creditor who garnishes wages. Like with a typical wage garnishment, the debtor’s employer retains a portion of their wages and sends them to the creditor, the IRS. However, there are important differences between a traditional wage garnishment and an IRS wage garnishment, including:
- The IRS does not have to get a court order before it can begin a wage garnishment
- The IRS is not subject to the federal wage garnishment law
- The IRS can take more of the employee’s income than a typical creditor
- The IRS calculates the amount of income they can garnish differently than other creditors do
IRS wage garnishment is just one of many ways the IRS uses to collect back taxes. Because a taxpayer’s financial situation can be significantly affected by an IRS wage garnishment, it is important that taxpayers have a solid understanding of how IRS wage garnishments work and how they can prevent them.
When can the IRS garnish wages?
The IRS has the right to garnish wages if a taxpayer failed to pay their taxes and the taxpayer has not made a plan with the IRS to pay them. While the garnishment is in place, your employer will send part of your wages to the IRS each pay period. The garnishment will remain in effect until one of the following occurs:
- The taxpayer enters into a payment plan with the IRS
- The taxpayer pays off the past tax debt
- The levy is released
The levy applies to your regular wages, as well as for any fees, commissions, and bonuses you collect.
How much can the IRS garnish?
The IRS is not subject to the same laws that other creditors are subject to that limit the amount of money they can garnish from a taxpayer’s wages. However, the Internal Revenue Code restricts how much money the IRS can garnish from a taxpayer’s paycheck. It exempts a certain amount of money for each paycheck the taxpayer receives. The exemption amount is different for each taxpayer. It depends on the standard deduction and the “amount determined” as outlined in Publication 1494. The amount determined considers the following factors when determining the amount of the exemption:
- Tax status
- How often the taxpayer is paid
- Number of dependents
- Whether the taxpayer is age 65 or older
- Whether the taxpayer is blind
Child support the taxpayer pays is also exempted.
The IRS sends the levy and Publication 1494 to the taxpayer’s employer to explain how to determine the exempt amount. The employer provides the taxpayer with a Statements of Dependents and Filing Status. The taxpayer must complete this document and return it within three days. If the taxpayer fails to complete this document, the taxpayer’s status will be computed as a married taxpayer filing separately with no dependents.
If the taxpayer has multiple income sources, the IRS may apply the exemptions to one source and levy 100% of the other income source. Bonus payments may also be taken in full.
Steps the IRS will take before garnishing wages
Fortunately, the IRS will take several steps to alert taxpayers before they begin garnishing their wages. The IRS will commence the process of garnishing wages by first sending a Notice and Demand for Payment. If the taxpayer fails to respond to this tax bill and does not pay the tax owed, the IRS will send a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days before the agency begins the levy.
Finally, the IRS will send an advance notification of Third Party Contact to notify the taxpayer that they plan to contact third parties to determine or collect on their tax liability. A taxpayer can still take action to avoid wage garnishment after receiving these notifications.
How to avoid wage garnishment
There are several steps that taxpayers can take to avoid wage garnishment stemming from back taxes. Levies are only imposed on back taxes. By staying current on their taxes and filing tax returns when they are due, taxpayers can avoid the pitfall of wage garnishment.
If a taxpayer already owes back taxes, they can try to pay off as much of the debt as they can to the IRS. They can then enter into an installment agreement with the IRS to make monthly payments on the remaining balance due.
Making an offer in compromise is an option for some taxpayers. This option allows a taxpayer to resolve their tax debt for less than they owe. In some situations, tax debt can be resolved through bankruptcy.
Taxpayers can also seek help from a dedicated tax attorney to help resolve tax issues and avoid wage garnishment. Damiens Law is here to help you understand all of your legal options when dealing with potential IRS wage garnishments.
Requesting a release of a tax levy
There are certain times when the IRS must release a tax levy, including when it determines any of the following have occurred:
- The taxpayer paid the amount of tax owed
- The period to collect the tax ended before the levy was issued
- The taxpayer will be able to pay their taxes if the levy is released
- The taxpayer enters into an installment agreement and the terms of that agreement do not permit the levy to continue
- The value of the property that is levied exceeds the amount the taxpayer owes and releasing the levy will not get in the way of the IRS collecting the amount of tax owed
Additionally, taxpayers can argue for a tax levy to be released if the levy is creating an economic hardship. The taxpayer can explain that the levy is creating an immediate economic hardship and request that the levy be released. An economic hardship is defined as one that prevents the taxpayer from meeting basic, reasonable living expenses. The IRS may require the taxpayer to provide documentation and financial information to prove the economic condition. A taxpayer can request the release over the phone or in writing.
If the IRS denies the release of the levy, the taxpayer can appeal this decision. If the levy has resulted in the seizure of funds or property, the taxpayer can also file a claim to have the property returned.
Even if the levy is released, the taxpayer is still obligated to pay the tax debt owed. However, the taxpayer can try to sort out payment with the IRS through an installment agreement or other method. If the taxpayer does not resolve the tax debt, a levy can be reissued.
Contact Damiens Law for help with IRS wage garnishments
If you have received notice of the IRS’ intent to levy your wages, Damiens Law can help. We have an in-depth understanding of IRS wage garnishments we can put to use to help with your claim. You can reach our Mississippi office by calling (662) 442-4423 or our Tennessee office at (901) 499-4466.