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Did you know IRS wage garnishments can be levied if you have unpaid back taxes? It’s scary. And it’s true.
But the good news is that the IRS is typically slow to garnish wages. It’s an expensive, time-consuming process. They would much rather you just pay your taxes. (Wouldn’t you prefer that, too?)
Unfortunately, things happen. Life gets in the way. And sometimes the fees and penalties have added up to the point where you just can’t pay your entire back taxes. You can still avoid IRS wage garnishments using any one of these seven methods. But first…
Understand What IRS Wage Garnishment Means
With IRS wage garnishments, the Internal Revenue Service can take a percentage of your wages until your back taxes, including penalties and fees, is paid off. Your employer must comply, providing the IRS with the information necessary to garnish your wages.
Before this happens, however, the IRS must make attempts to contact you regarding your back taxes. Thirty days before the IRS wage garnishments, the Internal Revenue Service can take a percentage of your wages until your back taxes, including penalties and fees, is paid off. Your employer must comply, providing the IRS with the information necessary to garnish your wages. begins, the agency will send you a Final Notice of Intent to Levy and a Notice of Your Right to a Hearing.
If you’ve been trying to avoid your tax problems and ignore the situation, wishing it would go away, now is the time to act. But what should you do?
You have options. If you aren’t sure of your best course of action, speak to a tax attorney to guide you.
1. Pay the taxes in full.
Obviously, if you could do this, you probably would have done it long ago. But it’s time to think about all your options to get the cash, fast. Consider:
If you have any means to pay your back taxes, this is no doubt the easiest way out of your situation.
2. Make an offer in compromise.
If you can show the IRS that there was either an error in your tax bill or that you can’t pay the full amount without undue financial hardship, you may be able to negotiate an offer in compromise. When you submit an offer in compromise, you negotiate an agreement to settle your back taxes immediately for an amount less than what you owe, often as little as 40 percent of the tax bill.
The IRS doesn’t automatically accept an offer in compromise. You’ll need to show compelling proof that you can’t pay. It often helps to have a tax attorney by your side during this process.
3. Apply for an installment agreement.
An installment agreement, or payment plan, permits you to pay off your back taxes in monthly installments as long as you owe less than $50,000 combined in back taxes, interest, and penalties.
Your installment payments will likely be much less per month than wage garnishment, because you suggest how much you can afford to pay.
Keep in mind, there are fees associated with the online application, but you may be able to reduce those fees if you agree to have payments automatically debited from your checking account.
4. Quit your job.
No, really. This will stop the IRS wage garnishments. Each time you change jobs, the IRS needs to start the process over with your new employer. However, if you don’t have a new job waiting in the wings, this clearly won’t improve your financial situation. It will just buy you some time with the IRS.
If you’ve been thinking of moving on, anyway, now’s a good time to dust off that resume and start the search for better (or at least, different) offers.
5. File for bankruptcy.
At Solvable, we don’t usually recommend bankruptcy as the solution to financial problems. (We believe most obligations and financial issues are “solvable” in other ways – get it?) However, some income back tax may be included in a Chapter 7 bankruptcy filing.
The back taxes must be at least three years old at the time of the bankruptcy filing. You must have filed all your tax returns on time. And you must not have committed tax fraud or tax evasion. Your bankruptcy lawyer can tell you if your back taxes can be included in your bankruptcy.
Face Your Back Taxes to Avoid Wage Garnishment
IRS wage garnishments can leave you without enough money to live on. The amount the IRS can take is based on your standard deductions and exemptions, and could amount to more than 50 percent of your paycheck.
Avoid this situation by making a plan to deal with your back taxes, and reach out to a tax attorney if you need help determining the best course of action or negotiating an agreement with the IRS.
You’ll sleep better knowing your back taxes is being taken care of and you can still collect a living wage for your hard work.