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If you fail to file your tax return or if you owe back taxes, a CA State Franchise Tax Board wage garnishment, known as an Earnings Withholding Order for Taxes (EWOT), may be imposed upon you. This is where a portion of your wages is withheld and paid to the Franchise Tax Board.
A wage garnishment can cause you undue financial hardship if the money left after the deduction is not sufficient for you and your family to live on. If the garnishment is placed because you failed to file, a substitute return may have been filed for you by the Franchise Tax Board, which could mean that the tax assessment is wrong. If you are suffering hardship, you should seek advice on how to stop the garnishment.
Firstly, a wage garnishment order should not come as a surprise to you. If you haven’t filed your tax return or you haven’t paid your taxes on time, you will have received a number of letters from the Franchise Tax Board. It must also follow specific guidelines before starting to garnish your wages:
Your employer is legally obligated to withhold a portion of your wages and pay it to the Franchise Tax Board. The deduction can be up to 25 percent of your wage. Trying to come to a deal with your employer to be paid “under the table” is not a good move. That would be a felony, leaving both you and your employer open to criminal prosecution.
As a further incentive for your employer to make the EWOT payments, failing to do so could render them liable for your tax debt. They can also deduct $1.50 for themselves from your paycheck for each payment they make.
The garnishment of your wages doesn’t end until you have paid your tax debt in full, along with any penalties and interest the debt has incurred.
If you are subject to an EWOT but you can prove that the deductions from your wages are causing you immediate financial hardship, the garnishment may be stopped. You are considered to be in financial hardship when you are not able to meet basic reasonable living expenses or if you have no money remaining after paying for reasonable living expenses.
A formal process is involved to prove financial hardship, and the Franchise Tax Board will require full financial disclosure from you. It will review your income, expenses, and any savings and assets you might have. If financial hardship is proved, your tax debt may be given the status of “currently not collectible.”
This doesn’t make your tax debt go away, however. The tax board will review your financial status every year, and if your situation improves, you will still have to pay your back taxes, plus late penalties and interest.
A CA State Franchise Tax Board wage garnishment can be avoided altogether by communicating with the tax board and responding to notices. Even if you can’t pay your tax liability in full, payment plans are available to ease the burden. The tax board prefers to work out an arrangement for you to pay your tax than to take enforcement action.
If you are unable to pay your taxes in full, the options for payment that you may be eligible for include the following:
You can apply to pay off your tax debt by monthly installments. You may be approved for a payment plan if the following are true:
You will end up paying more with an installment agreement, as interest will be added and compounded daily on the outstanding balance. The debt will also incur late payment penalties. You should pay as much as you can up front and agree to the shortest payment period you can reasonably afford.
You are not eligible for an installment agreement if you are already subject to an Earnings Withholding Order for Taxes.
If you don’t have the income or assets to pay your tax debts, and you are unlikely to in the foreseeable future, you may be a candidate for an offer in compromise (OIC). An OIC allows you to pay less than the amount you owe in back taxes.
The tax board will accept an OIC when the offer is the most it can expect to collect from you within a reasonable amount of time. It will consider the following factors:
If your OIC is accepted, you can’t pay in installments; you must pay the offered amount as a lump sum.
Graham Snelgrove is an English freelance writer who has had many articles on a wide variety of subjects published online and in print, including in Yachting Monthly, a Time Inc. publication. He currently lives on the Spanish island of Lanzarote in the Canary Islands.