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Each year, the IRS mails millions of wage garnishment notices and collects millions of dollars in back taxes. Wage garnishment is a way for the IRS to collect the back taxes you owe by withholding a specific amount from your wages.
Many other types of creditors can use wage garnishment to collect a debt owed to them, but IRS wage garnishment doesn’t follow the same regulations as a garnishment from other creditors.
The first step in dealing with any tax issue is making sense of the myths and facts surrounding the IRS. For instance, it isn’t illegal to owe on your taxes, but it is illegal to avoid filing a tax return. If you don’t file a tax return, the IRS files your tax return for you, which means that you’ll miss any exemptions or deductions, leading to a much larger debt. They’ll also garnish your wages when you fall behind on these owed taxes.
Image via Flickr by Jorge Franganillo
Once you get behind on your taxes, the IRS moves forward with a bill and a notification of what you’re believed to owe, plus any interest or penalties. You may also receive another bill with additional penalties and interest. If you don’t respond, you’ll receive your final notice, which is when the IRS will move forward with collections activity.
The IRS can be quite demanding in collection efforts. It begins with wage garnishment and levies, which can lead to the IRS seizing your home, car, stocks, bonds, checking and savings accounts, and other assets.
Before the IRS seizes your property, it will likely garnish your wages. First, the IRS will determine the amount you owe in taxes and send you notices regarding your debt. If you don’t respond to these notices, a Notice of Intent to Levy is sent. From that point, you have 30 days to get in touch with the IRS before it moves to garnish your wages.
Once the wage garnishment notice is mailed to your employer, you’ll have 14 more days to respond to the notices before your wage garnishment begins. If you don’t respond, your employer must implement the garnishment.
The IRS usually garnishes 70% or greater of a taxpayer’s wages. This high percentage encourages taxpayers to contact the IRS about their debts. Wage garnishment for other creditors has lower limits, usually around 25% of your net pay, but IRS regulations allow it to garnish more.
The amount of wages exempt from IRS wage garnishment depends on the filing status and the number of dependents on the tax return. For example, the exemption table shows that a single individual with no exemptions and a weekly pay schedule has $182.69 that’s exempt from garnishment with each paycheck. A married person filing jointly with two dependents and bi-weekly pay has $730.77 exempt from each paycheck.
If you’re an employer and received a wage garnishment for an employee, you are legally obligated to garnish the wages and turn in the specified amount to the IRS. Refusing to submit a wage garnishment leaves you vulnerable to civil penalties and criminal prosecution. This is also true of arranging to offer the employee cash.
The government provides an online Administrative Wage Garnishment Calculator to help employers calculate the appropriate amounts.
Generally, it’s preferable to prevent wage garnishment than stop it. If you get a wage garnishment notice from the IRS letting you know you owe taxes, it’s important to get in touch with them immediately and arrange to pay your tax debt.
Once wage garnishment begins, you need to get an IRS Wage Garnishment Release to end the garnishment. This can be done by paying the taxes you owe or by making payment arrangements if the amount is more than you can pay at one time. Once the debt is paid or an arrangement is approved, the garnishment will most likely end. The IRS may also want financial statements to make a payment arrangement.
An Offer in Compromise is another option to stop wage garnishment. This is a good option if you can’t pay the debt you owe. With an Offer in Compromise, you agree to pay a lower amount of your total debt, and the IRS considers the debt paid in full.
If you can prove that the debt belongs to another person, such as a former spouse, the IRS may release you from your tax liability.
Wage garnishment can occur if you fail to file your tax returns, are subjected to an audit, or fail to pay your back taxes. You may also be subjected to wage garnishment if you have a lot of interest and penalties.
Here are some other ways a tax professional can help you tackle wage garnishment or avoid it altogether:
If your wages are garnished, however, you need a solution. A tax professional can help in this situation, since they understand the regulations, deadlines, forms, rules, procedures, and solutions to stop garnishment.
Regardless of what tax situation you find yourself in, a tax professional can help you learn more about your options and determine the best course of action for your needs. They’ll also contact the IRS on your behalf, often reaching an agreement that stops the garnishment quickly.
If you’re struggling with IRS wage garnishment, Solvable can help. We’ll put you in contact with experienced tax professionals who can help you review your options and find a solution that works for your needs. Contact us today to see what we can do for you!