Wage garnishments, also called a wage levy, is an IRS collection procedure. As long as the IRS gives you proper notice, the IRS has the right to go to anyone who owes you money to collect the amount of taxes it is owed.
What is Wage Garnishment
People that are W-2 employees are relatively easy to collect from because of the usual regular payments received from their employers. This is different from a bank levy because it is continuous. This means once the wage garnishment is in place, it stays in place until you make arrangements to pay off the tax debt, the tax debt is paid off, or you get the lien released because you have a financial hardship.
After you receive the Notice of Intent to Levy and 30 days pass, the IRS can contact your employer (without more notice to you), to request that the employer garnish your wages. In its request, the IRS determines how much the IRS can take out of your paycheck. You are given a chance to notify the IRS about how much the garnishment should be for. Things such as your allowed exemptions for taking current year taxes out of your pay should be considered, as would obligations like child support, which take a priority over the tax garnishment. Also, if you have a bonus or commissions being paid, the IRS will take a much larger percentage because of that higher than usual activity.
If you don’t take the opportunity to inform the IRS, they will use the least amount out for current taxes, which will leave more available from your net pay to pay towards prior year tax debt. Yes – the IRS has to follow a calculation to determine its limits on how much it takes from your paycheck, but it’s in your best interest to contact the IRS and be part of that process.
How to Stop Wage Garnishment
Of course, getting in contact with the IRS before the garnishment starts is best to make other arrangements. But if you don’t do so, you have a few options to help stop wage garnishment:
- If you have funds from other sources, such as bank accounts or taking out a loan, you may want to do that instead of having it come out of your wages. You should call the IRS at the address on the Notice of Intent to Levy to discuss payment arrangements. It is unlikely that the IRS will stop the garnishment until it gets its hands on your payment.
- If you owe less than $50,000 (or can make a payment to get your tax debt below that amount), the IRS may entertain a direct debit installment arrangement while releasing your wage garnishment. This will greatly depend on your particular circumstances.
- You could, of course, allow the wage garnishment to continue. If it is a manageable amount that comes out of your paycheck, you may decide it is reasonable to allow that to continue in lieu of having the IRS get into your bank accounts or take other collection action against you. If you have income from other sources than your W-2 job, this may make sense to at least get a start of paying down your tax bill.
- Quit your job. This sounds harsh and is likely unrealistic. But, if you leave the job on which your wages are being garnished and take a different job, the garnishment doesn’t automatically transfer to your new employer. Of course, hopping from job to job to avoid IRS collections is exhausting and not a way to live life. It’s the same as keeping your money out of the bank for fear of a levy. It’s better to communicate with the IRS to work out some other arrangement rather than losing out on income that you and your family need to live on.
- File for bankruptcy protection. Taxes are only dischargeable in bankruptcy if you meet specific requirements. However, if you have other debts in your name and it makes sense to file bankruptcy for other reasons, you may want to explore that option. A bankruptcy filing stops all collection action against you. It may also provide some other relief for payments you’re making to unsecured creditors because the IRS will not take into account those payments you are making to them because the tax debt takes priority. If you are able to reduce that unsecured debt, you may have more money available to start paying off taxes in a way that allows you to keep up with your other reasonable living expenses.
- Often times, the IRS garnishment is extreme and leaves you with no money left over in a pay period to pay your living expenses. In that case, it’s important to contact the IRS right away to get an immediate release of the garnishment. You will need to supply bank account and living expense information to show the IRS that you can’t meet your needs if they continue to take money from your paychecks. Before calling, you must be prepared with supporting information. If you owe less than $50,000 and you’re willing to enter into an installment arrangement with the IRS to pay a reasonable monthly amount due, it is likely you can get a release from them. Another alternative to the installment agreement is to show the IRS you may be eligible for an Offer in Compromise, which will allow the IRS to release the garnishment as well.
An IRS wage garnishment or levy is a serious thing, particularly because it involves taking money directly from your weekly or bi-weekly funds from which you pay your living expenses. However, just because a garnishment has started doesn’t mean it has to continue. Working with a tax debt relief professional can help you figure out what option will suit you best so you can take back control of figuring out your tax issue.