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Wage Garnishment

Wage Garnishments

The IRS often chooses to use a wage garnishment to compel taxpayers to pay their back-tax debt. Wage levies offer a direct avenue to repayment with minimal use of IRS resources. However, levies can be a hardship for those who live paycheck-to-paycheck or prefer privacy at work. Because wage levies can be stressful, we’ve developed the following crash course on the basics of an IRS wage garnishment.

What is a Wage Garnishment?

A wage levy is defined by the IRS as “the legal seizure of your property to satisfy a tax debt.” A wage levy, also known as a wage garnishment, is rarely a surprise to the taxpayer. Before an employer is notified of your back-tax liability, the IRS tries to collect the debt from the taxpayer directly. First, they send a Notice and Demand for Payment to the address on the taxpayer’s file.

This includes a payment deadline and payment instructions. If no payment is received by the deadline, the IRS will send another notice to the same address. This is called a Final Notice of Intent to Levy and Notice of Your Right to A Hearing. It may arrive via certified U.S. Mail with return receipt or it may be delivered to your home or work address in person.

This levy notice isn’t limited to wage garnishment. It may be notifying the taxpayer that a levy is imminent on other assets. These could include funds in a checking or savings account, retirement account, investment account and much more.

Wage Levy vs. Lien

A levy and a lien are used to accomplish the same goal, but they’re separate procedures. A levy, as mentioned above, is a legal seizure of your property to satisfy a tax debt. A lien, in comparison, is “a legal claim against your property to secure payment of your tax debt.” Put simply, a levy takes your property from you while a lien claims an interest in the property.

Having a levy on your assets, such as wages or a checking account, means that the IRS can literally take them from you. A lien is different in that your assets aren’t immediately taken from you. It lets your creditors know that any further transactions must consider the taxpayer’s back-tax debt.

For example, consider a taxpayer with income from an employer, a savings account, a home, and a car. A levy on her income and her savings account means that money will be confiscated. A levy remains in place until the back-tax debt is paid in full. A lien notifies the banks that hold the mortgage and car note that future transactions must include a remedy for the debt.

What to Expect from a Wage Garnishment

How much will the IRS take from my check? Will they take my bonus? How long will the wage levy be in place? These important questions and many more plague taxpayers who receive a notice of levy from the IRS.

First things first; the IRS only requires your employer to withhold part of your wages. Rest assured that you will continue to receive much of your monthly wages. However, the garnishment will remain in place until the back-tax debt has been paid off completely. The levy may be released if other payment arrangements are agreed to by the IRS, as well.

Part of your wages is off-limits, and your employer receives instructions for determining how much to withhold from your paychecks every month. They’re instructed to determine the amount to withhold by providing you with a form to complete. This is called a Statement of Dependents and Filing Status, and it must be completed within three days.

It asks for information about the dependents you claim for the year in which the levy is issued. If you don’t return the statement to your employer within three days, they’re instructed to calculate IRS withholdings as if you’re married, filing separately with no dependents. This is to allow you to pay for your basic needs, such as food and rent, as well as those of your dependents.

If you have other sources of income, the IRS “may allocate the exemptions to the other income source and levy on 100% of the income from a particular employer.” The amount exempted from withholdings applies to all your income sources combined. Any income earned outside the exempted amount will be sent to the IRS. That extra bonus you might’ve been looking forward to before the levy, is now going to be applied to your back-tax debt.

Getting a Wage Levy Released

The IRS would prefer that every taxpayer make their tax payments in full and on time. But we don’t live in a perfect world and this isn’t a realistic option for many people. If a wage levy creates a significant and immediate financial hardship, the IRS may reconsider the levy.

Speaking with the IRS can be tricky. Everything you say can and will be used against you, especially if you have back-tax debt. But communicating with them is the only way to resolve a back-tax issue. Consider hiring a seasoned tax relief professional to examine your case and speak with the IRS on your behalf. This helps to safeguard your financial health as much as possible.

If your request to release a levy, due to an immediate economic hardship is denied, you may file an appeal. You may even request to have your wages returned to you, if applicable. The IRS will release the levy if one of the following applies to you:

  • The entirety of the past-due balance is paid,
  • The statute for limitations for collections has expired,
  • The levy is hindering you from paying your taxes,
  • You establish alternative payment arrangements with the IRS, or
  • The levy prevents the taxpayer from obtaining basic needs.

The IRS notes that “the release of a levy does not mean you don’t have to pay the balance due.” You’re still required to pay the balance, even if the levy is released. Other arrangements must be made to pay the balance down. The levy can be reissued if satisfactory progress isn’t made on paying the debt in a timely manner.

Avoiding a Wage Levy

Avoiding a levy is simple, although not always easy: file returns and pay your taxes on time. An extension may be filed if you need more time to prepare your returns. But they should be filed by the deadline with, or without, the full tax payment to avoid costly penalties and interest.

Getting Help With a Wage Garnishment

Understanding the intricacies of IRS procedures is key when striving for the best possible outcome in having wage levies released. We’ve been working with the IRS for over 35 years and have a keen understanding of what they’re looking for. Let us communicate with the IRS on your behalf.

As your representative, we will take over all communications with the IRS. Not only will we work to have the IRS release the levy, but we’ll negotiate to reduce the overall balance. We’ll also set up a payment plan with affordable monthly installments as a means to an end to your back-tax stress.

Give us a call today at 800.518.8964. We’ll happily discuss your case and determine the best avenue toward resolution in a free phone consultation. Call us today and sleep better tonight with the knowledge and expertise of accredited professionals working to bring you into compliance with the IRS once and for all.

Sources

[1] How Do I Avoid a Levy | Internal Revenue Service. (n.d.). Retrieved from //www.irs.gov/businesses/small-businesses-self-employed/how-do-i-avoid-a-levy

[2] How Do I Get a Levy Released | Internal Revenue Service. (n.d.). Retrieved from //www.irs.gov/businesses/small-businesses-self-employed/how-do-i-get-a-levy-released

[3] Information About Wage Levies. (n.d.). Retrieved from //www.irs.gov/businesses/small-businesses-self-employed/information-about-wage-levies

[4] Levy. (n.d.). Retrieved from //www.irs.gov/businesses/small-businesses-self-employed/levy

[5] What if a levy on my wages is causing a hardship? (n.d.). Retrieved from //www.irs.gov/newsroom/what-if-a-levy-on-my-wages-is-causing-a-hardship

[6] What is a Levy | Internal Revenue Service. (n.d.). Retrieved from //www.irs.gov/businesses/small-businesses-self-employed/what-is-a-levy

[7] Whats the Difference Between a Levy and a Lien | Internal Revenue Service. (n.d.). Retrieved from //www.irs.gov/businesses/small-businesses-self-employed/whats-the-difference-between-a-levy-and-a-lien

Walter Wotman, CPA

Founder & Managing Partner

Walter Wotman, CPA is the author of "Tax Champions Guide to Tax Resolution." Amazon #1 Best Seller in the Personal Finance category. He is one of America's most experienced tax negotiators with over 35 years of experience helping thousands of clients settle difficult back tax issues.
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