What To Know About Wage Garnishment
When confronted with outstanding tax liabilities, the IRS will never overlook the issue without seeking resolution. In fact, they will often attempt to collect on that debt in a much more aggressive manner than other creditors. Wage garnishment is just one tool among others that the IRS has to collect back tax debt.
If you currently have tax debt, the worst thing you can do is ignore it. Neglecting the debt will only worsen the situation. The IRS will continue to tack on additional penalties and interest. The sooner you confront this problem, the better off you will be from both a financial and personal perspective.
The Wage Garnishment Process
The IRS can take money from your paycheck without going to court, unlike other creditors. If the IRS decides to pursue wage garnishment, it can begin to seize your wages immediately.
The IRS can garnish your wages without a court order, but they will always inform you before starting the process. If you received any of these notices, be sure to check the deadline dates. Respond promptly to prevent the deduction of money from your paycheck.
(1) Notice and Demand For Payment
CP14, CP501, or CP503 – The IRS will first send a notice of tax balance due and request for payment. It includes the amount you owe, payment options, and the deadline for repayment. You have 21 days to pay the liability in full or you will face additional interest and penalty fees.
(2) Notice of Intent to Levy
CP504 – If you haven’t paid previous demands, the IRS will send a Notice of Intent to Levy, also known as CP504. This notice is required by Internal Revenue Code Section 6331. This is your final warning from the IRS. They will take money from your paycheck, bank accounts, and tax refunds to pay your overdue taxes.
(3) Notice of Your Right to a CDP Hearing
LT11/Letter 1058 – If you’ve received a Notice of Your Right to a CDP Hearing via certified mail, this is the final step of the wage garnishment process before the IRS can start seizing your paycheck. The CDP notice explains your right to request a hearing within 30 days of the date on the notice. If you plan to challenge the wage levy, you must do so before the deadline date.
(4) Notice of Levy on Wages, Salary, & Other Income
Form 668-W – The IRS will send your employer Form 668W if you have not requested a hearing within the designated timeline on your CDP notice. This notifies them that the IRS intends to levy your wages.
Your employer will then ask you to sign the Statement of Exemptions and Filing Status. If you do not complete and return this within 3 days, the exempt amount will be calculated as though you are married filing separately with no children. It generally takes only one pay period before the IRS begins to levy your paycheck or approximately 15 days after the CDP deadline has passed.
To recap:
- The IRS uses wage garnishment to seize your wages to repay tax debt.
- The IRS does not need a court order to initiate the garnishment process.
- The IRS will provide notice before initiating the garnishment process.
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How Much Can The IRS Take?
Since the IRS is not subject to the same laws imposed on other creditors (Federal Wage Garnishment Law, Consumer Credit Protection Act’s Title III), the IRS can garnish up to 70% of your paycheck, and sometimes more. Depending on your financial situation, that can leave you with very little to live on day-to-day. The IRS uses your filing status, number of dependents, and information gathered from your employer to determine exactly how much you can keep.
Once the IRS moves to garnish your wages, it will send your employer Publication 1494 along with the Notice of Levy on Wages. After your employer completes the form, the IRS will use it to determine how much of your pay is exempt from the levy. If you earn income from more than one source, the IRS might not allocate exemptions to both — it could potentially levy 100% of your additional income.
This includes commissions, bonuses, and other types of payment. For a complete lists of the types of earnings the IRS can garnish, see our comprehensive list below:
Earnings at Risk To Wage Garnishment
- Commissions
- Bonuses
- Lump-sum payments
- Holiday pay
- Worker’s compensation payments for wage replacement
- Relocation or moving incentives
- Profit sharing
- Cash service awards
- Insurance settlements
- Retroactive merit increases
- Termination or severance pay
How to Stop Wage Garnishment
Nobody wants to give up their hard-earned paycheck. The good news is that taxpayers have several options to remove a wage garnishment after it has started.
However, it’s important to understand that you will almost always need to pay a portion of your tax debt in order to stop wage garnishment.
The first and most straightforward way to immediately halt a wage garnishment is to pay your back tax debt in full. Not every taxpayer can manage this financially, though, so the IRS provides alternatives such as installment agreements or offers in compromise.
Options For Stopping a Wage Levy
1. Installment Agreement / Payment Plans
Setting up an Installment Agreement allows you to pay off your tax debt in small monthly payments. The IRS may stop taking money from your paycheck if you agree to a payment plan and always pay on time.
Making payments on time in a payment plan can lead to the IRS stopping wage garnishment. And, your monthly installment payments will likely be lower than the previous garnishments. But if you fail to make your scheduled payments on time, the IRS can go back to garnishing your wages.
2. Offers in Compromise
Making an offer in compromise (OIC) to the IRS could be a viable option if you can’t pay your tax liability in full. If the IRS accepts the offer, you will pay your settlement amount, and the rest of your debt will be wiped clean. And most importantly, the garnishments will be lifted.
However, the IRS will only accept your offer if they feel that it is greater than or equal to the amount they would ever collect from you (roughly 60% of offers-in-compromise are rejected by the IRS). You’ll need a rock-solid proposal, so it’s best to get help from a professional.
3. CNC Status
Currently Not Collectible (CNC) status is a temporary, two-year relief period during which a taxpayer does not have to make payments toward their past due debt to the IRS. The IRS will only grant CNC status if it determines that, based on your financial condition, it cannot possibly collect from you. Once CNC status is in effect, all collection actions on your account will stop, including wage garnishment. However, it’s important to note that once your financial condition improves, the IRS will restart the collections process.
To recap:
- Wage garnishment can be stopped after it has started.
- You have multiple ways to remove a garnishment order.
- You will almost always need to pay at least some of your tax debt to stop the process.
Wage Garnishment FAQ’s
If you have received notices from the IRS indicating that they intend to garnish your wages, you probably have many questions. Here are a few of the most common ones we are typically asked.
Does the IRS Need a Court Order to Garnish My Wages?
No. Unlike other creditors, the IRS can levy your wages without a court order.
How Long Will the IRS Garnish My Wages?
The IRS will continue to garnish your wages until either your tax debt is paid in full, or until one of the following has happened:
- You enter into an installment agreement with the IRS
- The IRS accepts your offer in compromise (OIC)
- You qualify for financial hardship or CNC status
- You file for bankruptcy
- The Collection Statute Expiration Date (CSED) on your tax debt has expired
Can I Appeal the IRS Decision to Garnish My Wages?
Yes. You should receive a certified notice from the IRS (LT 11 or Letter 1058) detailing your right to a Collections Due Process (CDP) Hearing. You must request a CDP hearing within 30 days of the notice date. At the hearing, you may either dispute the amount owed, or request to enter an installment agreement. But, if you do not request the hearing before the deadline, the wage garnishment may begin within the next two weeks.
I Changed Addresses and Stopped Getting IRS Notices. Am I Protected From Wage Garnishment?
No. It’s your responsibility to make sure the IRS has the correct address on file. The mail notices are probably still being sent to your old address.
If a notice says that you have 30 days to respond, it doesn’t matter that you never saw it. The deadline on the notice won’t change. Always make sure to notify the IRS to update your address every time you move.
IRS Wage Garnishment Help – Remove Wage Garnishments
Here at Boxelder Consulting, we understand the importance of a tailored resolution plan that focuses on the results that you want to achieve. Armed with decades of combined experience negotiating with the IRS, our licensed tax professionals always consider which resolution plan will save you the most time and money in the long run.