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The Internal Revenue Service (IRS) expects you to pay your taxes by April 15 or, if that day is a holiday or weekend, the next business day. If the total amount due is more than your budget can bear, the IRS expects you to request an extension or set up a payment plan.
It’s always in your best interest to pay in full when you file the return, but by working with an IRS representative you can minimize the penalties. Without payment or making arrangements to pay, the IRS might determine that placing a levy on your personal property is the only way to collect the debt.
The IRS has the legal right to place a levy on your personal property if you owe unpaid back taxes. Unlike many creditors, the IRS doesn’t require a court order to assess a levy on your property. It has full authority to act on behalf of the federal government and collect the debt. Garnishment is possible from:
The IRS will only place a levy on your property if:
Once the IRS has met the above criteria, and assuming you’ve neither made arrangements to make payments nor hired a tax attorney to negotiate on your behalf, the IRS will use its calculation table to satisfy the debt. The calculation determines how much remains in your take-home pay, as opposed to how much is garnished.
If, for example, you’ve filed as a single person with one dependent, the IRS will leave you $315.39 per week. If your take-home pay is normally $678 per week, the IRS can claim $362.61. Depending on your financial circumstances, losing almost half of your paycheck each week could feel like a significant burden.
The IRS can also place liens on real estate, automobiles, and other forms of income. Your personal property is at risk for garnishment when the IRS is forced to use a levy as its form of collection.
Despite its reputation as a behemoth bureaucracy with a complicated tax code, the IRS has many steps it can take before resorting to wage garnishment. The trick is to be proactive about your debt. Whatever you do, don’t avoid IRS notices. You can avoid wage garnishment by:
Though the IRS doesn’t directly report an assessed levy to credit bureaus, the impact of dramatically decreased take-home income might have ripple effects on your other debts. Most Americans base their lifestyle choices on their wages, and a drastic and sudden change in that amount can lead to tremendous financial hardship. Inability to pay your mortgage on time, missed car payments, or chronically late credit card payments will be reported to the credit bureaus and greatly affect your credit score. You might feel smothered by the weight of your debt.
The only relief will come once you’ve satisfied your tax debt completely. That is a fact no matter how the IRS collects your debt, so it’s in your best interest long-term to exhaust all other possibilities to negotiate another way to pay back taxes. You might consider hiring a tax attorney to help you wade through the process and interpret the law to your favor. Facing your tax debt head-on in a timely and organized way can alleviate some of the stress that comes with an uncertain financial future.
In a moment of crisis, turn to the debt-relief resources Solvable provides. We can explain all your options to help you resolve your tax debt and remain financially solvent.
Alisa writes about tax and credit card debt for Solvable.