A wage garnishment is a specific type of tax levy where the IRS takes money directly from your paycheck. This is one of the most common levies the IRS uses, and it is incredibly serious. Wage garnishments continue until the IRS collects the taxes owed plus interest and penalties, you make payment arrangements with the IRS, or the statute of limitations expires on the liability.
The IRS can garnish your wages including commissions and bonuses. If you are self-employed or an independent contractor, the IRS cannot garnish wages from an employer. However, the agency can seize rental income, accounts receivables (money your clients owe you), and funds from your bank account as well as other property.
If the IRS decides to levy your wages, it will send Form 668–W(ICS), Form 668-W(C)DO, or a similar notice to your employer. The notice explains the garnishment process to your employer, and it includes guidelines on how much your employer should take from your check.
After receiving the garnishment notice, your employer should give you a Statement of Exemptions and Filing Status. This form requires you to note if you file single, married filing jointly, head of household, etc and your number of exemptions. For example, if you are married with one child, you generally claim three exemptions. You must return this form in three days. If you don’t return the form, the IRS assumes you are married filing separately with one exemption.
Based on your filing information, your employer uses Publication 1494 to determine how much to withhold. This publication allows you a certain amount of money for basic living expenses. For instance, as of 2018, if you are single with one exemption, you get $40.96 per day in take-home pay. If you are married filing jointly with five exemptions, you get to keep $129.81 per day. Your boss has to send any amounts over these thresholds directly to the IRS.
If your employer fails to send the demanded amounts, the IRS holds your company or responsible person personally liable. As a result, employers almost always comply with these demands. Note that it is illegal for your employer to fire you over a wage garnishment, but if you have two separate entities garnishing your wages, your employer may be able to dismiss you legally.
The IRS does not garnish wages earmarked for court-ordered child support. If those amounts are already being withheld from your paycheck, your employer automatically takes them into account when calculating how much to send to the IRS.
If you pay your child support on your own, you should contact the IRS directly. Ask your employer for the phone number from the letter they received. The IRS will allow you to keep those extra funds to make your support payments, but then, you cannot claim an exemption for that child.
The IRS will continue with the garnishment until all of the taxes, penalties, and interest have been paid back in full. If you don’t make some other arrangement with the IRS, they will take the maximum amount allowed by law. The IRS uses wage garnishments as a last resort to collect on taxes owed after multiple notices have been sent with details on how to make other arrangements with the IRS on ways to pay. Generally, you can pay less per month or even nothing if you work with the IRS on other alternatives.
If you ignore your tax liability, the IRS has the right to seize many of your assets including your wages. With a wage garnishment, the IRS contacts your employer and tells them to send all of your wages over a certain amount to the IRS. Your employer will comply with the IRS because they will become personally liable for the amounts if they don’t collect. However, the IRS has to follow a specific protocol. To protect yourself, you should understand the laws and rules.
The IRS does not surprise taxpayers with wage garnishments. Before garnishing your wages, the IRS will notify you before the potential garnishment through several notices. The last one is an “intent of notice to levy.” After sending this notice, the IRS identifies the most convenient way to get the funds from you, and in most cases, that is a wage garnishment. The garnishment starts 30 days after you receive this notice.
For the IRS to legally garnish your wages or levy any of your other assets, the following steps must take place:
Once these three steps happen, the IRS can and will garnish your wages. However, wage garnishments take time and energy. The IRS prefers to work out arrangements with the taxpayer. If you receive a final notice, try to make arrangements before the levy starts.
As explained above, the IRS has to send you a notice of intent to levy before garnishing your wages. There are many different notices the IRS uses, and they include CP 504, CP90, LT 1058, LT11, and CP297.
CP 504 notifies you that the IRS plans to levy (seize) your state tax refund, and if that doesn’t cover your taxes owed, the agency will start searching for other assets including wages to cover your taxes owed. CP 90, LT 1058, and LT11 explain that the IRS plans to levy your assets for your taxes owed and potentially place a lien against you. CP297 warns you that the IRS intends to seize your assets and advises you to submit Form 2848 (Power of Attorney and Declaration of Representative) if you have a tax professional helping you.
These notices contain slightly different wording, but they all boil down to the same message. They also notify you of your right to request a Collection Due Process hearing, and if applicable, they warn you that your passport may be seized. Usually, the agency only takes your passport if you have over $50,000 in taxes owed.
There are a few cases where the IRS doesn’t have to give you a 30-day warning. They include the following:
If these situations don’t apply, the IRS must give you 30-days notice before garnishing your wages or seizing your assets.
The IRS cannot garnish all of your wages or a set percentage of them. Instead, the IRS has a published wage garnishment table that dictates how much of your take-home pay you get to keep, and your employer has to send the rest to the IRS. The amount you can keep varies depending on your filing status and the number of exemptions you claim. For example, if you are married filing jointly with three kids, you get to keep $649.04 per week (as of 2018, the IRS updates their IRS wage garnishment table each year).
Typically, if you earn minimum wage, your wages won’t be affected by a garnishment. However, if you are single or married filing separately with only one exemption, you are only allowed $40.96 per day, so even if you make minimum wage, the IRS will take about $13 per day.
The more you earn, the higher a percentage of your wages the IRS takes. For instance, if you are a single person making $100,000, the IRS will garnish about 90 percent of your wages.
On top of that, if you have two jobs and your wages from one job cover the threshold, the IRS can take 100 percent of your earnings from your other job. Similarly, if your employer gives you a bonus, the IRS can take all of that.
If you are self-employed, you don’t have traditional income, and the IRS can’t contact your employer to garnish your wages. However, the IRS can contact your clients and tell them to send payments directly to the IRS. The IRS can also levy your rental income, sales commissions, and almost any assets you have.
If you have questions about the wage garnishment process, contact a tax professional. They can help you stop the garnishment and find a solution for your taxes owed.
The most effective way to stop or release IRS wage garnishment is to set up some agreement or resolution with the IRS. Filing compliance is usually a requirement. However, the best course of action regarding stopping or preventing an IRS wage garnishment depends on where the IRS is in levy process, your financial and tax compliance situation.
If the IRS sent you a “Final Notice” letter regarding a levy, this usually means that the IRS has not levied your wages or bank accounts yet but intends to do so.
You are looking for the words “Final Notice” with a threat of levy on the notice as this will indicate the IRS intends to levy your bank, wages or federal payments if you take no action. Here are some examples:
You have the right to appeal the tax levy before or after the IRS places the garnishment. Usually, before the IRS levies, they need to notify the taxpayer of their rights to appeal beforehand. There are exceptions though.
The letters above inform you of your rights to a hearing. If you request a Collection Due Process (CDP) hearing in time, the IRS cannot levy you while they process your appeal. It could take a few months. However, to request a CDP hearing in time, it must be postmarked within 30 days after the date of the Final Notice.
You can request a hearing after 30 days has passed as the IRS may honor it. The benefit here results from the statute of limitations (time for the IRS to collect) continuing to tick because it is technically now an “Equivalent Hearing,” which can be requested up to 1 year after receiving the Final Notice of Intent to Levy. However, you cannot go to court to challenge the IRS Office of Appeals’ decision and the IRS can still garnish wages. The IRS IRM (Internal Revenue Manual, 8.22.4) directs employees to suspend levy action unless “Collection determines it to be appropriate.” It is contrary to IRS Publication 660 that states “an equivalent hearing request does not prohibit levy.”
Regardless, requesting a hearing is only a temporary solution to prevent or lift the levy. The IRS will typically put you in contact with an IRS Settlement Officer whose job is to settle the case. Therefore, you will need a long-term solution worked out. It is best to work with a licensed tax professional (EA, CPA, or tax attorney) so he can analyze all your options, and you get the best outcome.
You have the right to appeal through the Collection Appeals Program (CAP) before and after the IRS garnishes your wages. It is usually faster than a Collection Due Process hearing, but you cannot use this process if you disagree with the amount due. Also, if you don’t like the determination, you can’t take the case to the Tax Court. To appeal with CAP, submit Form 9423 (Collection Appeal Request).
When you file bankruptcy, the courts issue a stay which prevents the IRS from taking your wages. However, this is only a temporary solution. Bankruptcy gets rid of some taxes owed, and in many cases, bankruptcy does not get rid of any taxes owed. To be discharged, the liability must meet several criteria. Most importantly, it must be income taxes owed, and it must be more than three years old.
Additionally, bankruptcy has grave repercussions for your credit history. If you solely have taxes owed, carefully reconsider bankruptcy. Before making your decision, consult with a tax attorney or a bankruptcy attorney.
If you can barely make ends meet, you can apply for a hardship or currently not collectible (CNC) status with the IRS. You’ll have to provide full financial disclosure in most cases, but if you qualify, the IRS temporarily pauses all collection activity. Again, consult with a tax professional.
Whether before or after a wage garnishment, an appeal in most cases will require a long-term resolution to be worked out. A tax professional can help you set up payments to cover all or part of your liability, and if you don’t have any money, you can apply for hardship status. Aside from working with the IRS, there are a few other steps you can take to stop wage garnishment. Here are the main options.
Paying in full immediately stops the wage garnishment. Some taxpayers take out loans so they can make a full payment. Sometimes, if you have a tax lien as well, you can refinance your home (if you have equity) and subordinate the tax lien to pay off your taxes.
An installment agreement is where you make monthly payments on your taxes owed. Usually, IRS monthly payments are much less than the amount the IRS garnishes per month. If you owe less than $50,000, you can apply online and take up to six years to pay off the taxes owed. As of 2018, the IRS is testing expanded criteria for streamlined installment plans, and if you owe up to $100,000, you can take up to eight years to repay.
An offer in compromise is when the IRS lets you settle your taxes owed for less than you owe. You have to provide detailed financial information to get this type of resolution. To increase your chances of success, you should work with a tax professional. Typically, the IRS stops the wage garnishment while it reviews your application.
Usually, when two people file married filing jointly, the IRS holds both people responsible for the liability. However, there are exceptions to this rule. If you believe your spouse or ex should be held partially or exclusively responsible for the liability, you can apply for innocent spouse relief.
When you file bankruptcy, the courts issue a stay which prevents the IRS from taking your wages. However, this is a temporary solution. Bankruptcy can get rid of some taxes owed, and in many cases, bankruptcy does not get rid of any taxes owed. To be discharged, the liability must meet several criteria. Most importantly, it must be income taxes owed, and it must be more than three years old.
Additionally, bankruptcy has grave repercussions for your credit history. If you solely have taxes owed, carefully reconsider bankruptcy. Before making your decision, consult with a tax attorney or a bankruptcy attorney.
There are several steps you can take to reduce the effect of the wage garnishment. Ideally, you should not take any of these actions, but looking at them can help you understand how the wage garnishment process works.
Decrease Your Income — The IRS allows you to keep some of your earnings. If you don’t want any of your income garnished, you can reduce your income so that it is under the threshold. However, if you have assets or property, the IRS may decide to go after that instead.
Change Your Employer — This strategy can work for a short amount of time, but remember, when you start a new job, your employer sends tax information to the IRS. Once the IRS realizes you have a new employer, the agency will notify the new employer about the garnishment.
Temporarily Quit Your Job — Some people try to quit their job temporarily. Then, when their boss rehires them, they have a small window amount of time before the garnishment starts again.
Dealing with a wage garnishment is stressful and confusing. Unless you make payment arrangements or get hardship status, the IRS will garnish your wages until you satisfy the taxes owed, plus interest and penalties. When you work with a tax professional, they can help you find a solution that works for your financial situation.
The IRS likes working with professionals and often gives professionals better deals than ordinary taxpayers.
You can appeal a wage garnishment when the IRS sends you a letter of an impending levy. You can also appeal the garnishment once it is in place. The process is the same that you use to appeal all other types of IRS levies. Learn more about appealing wage garnishment.
A wage garnishment is a serious issue. To avoid or stop a wage garnishment, you should get professional help. Our tax professionals can help you to find a solution for your taxes owed. Learn more about the wage garnishment process.