You get a notice from your employer that the IRS is demanding that they garnish your wages. It’s an embarrassing situation.
About 7% of employees have had their wages garnished and 20% of all garnishments are related to unpaid taxes.
Read on to learn everything you need to know about an IRS wage garnishment and how you can resolve your tax debt.
What is IRS Wage Garnishment?
A wage garnishment is when your employer is instructed by tax authorities or a court judge to withhold a part of your earnings. That portion of the earnings is sent directly to your creditors.
Wage garnishments can happen for a variety of reasons. While many are related to unpaid taxes, other reasons include unpaid alimony or child support, or to repay an unpaid debt.
The difference between an IRS wage garnishment and other types of garnishment is that all other garnishments require a court order. The IRS doesn’t need one.
The IRS can legally garnish your wages to satisfy an unpaid tax debt. The IRS can usually garnish a much higher amount than your creditors can, too.
An IRS wage garnishment is different from a tax lien and a tax levy. A tax lien is the IRS way of laying a claim on your property, whether that’s your home, business equipment, or personal vehicles.
In cases where you don’t own property, the IRS can place a levy on your finances. A levy is used to seize financial accounts, such as checking and savings accounts.
Garnishments typically mean that your income is being seized at the source.
If you’re an employer and you receive a notice to garnish an employee’s wages, you can’t ignore it. You are legally obligated to comply with the garnishment.
How Much Can the IRS Garnish from Your Wages?
The IRS has the legal power to garnish all of your wages, but they certainly don’t want to leave you with nothing to live on. Instead, IRS staff will use a formula to determine how much is taken to satisfy your unpaid tax debt.
You can find this formula in IRS Publication 1494. Your filing status, frequency of paychecks, and the number of dependents are taken into account to determine how much the IRS will take and how much you’re left with.
Let’s say that your tax status is Married Filing Separately, and you have 2 dependents. If you’re paid semi-monthly, the IRS will exempt $875.01 per paycheck from garnishment.
In this example, if your average paycheck is $2800, the IRS will garnish the majority of your check, leaving you with much less to live on than you’re used to.
The IRS will send a form to your employer which you need to fill out with your filing status and the number of dependents.
You have 3 days to fill out the form. If you ignore it, the IRS will assume that you have no dependents and your filing status is married filing separately.
Additional Garnishment Fees
If that’s not enough, you may be charged additional fees for the garnishment. In some states, employers have the right to charge an administrative fee to garnish your wages. How much can be taken out will vary by state.
For example, Georgia-based employers can charge between $25 – $50. Other states cap the fee at 2% of your income. There are a handful of states that outlaw this practice all together.
How Long Can the IRS Garnish Wages?
The IRS can garnish wages until the debt is satisfied or you have another arrangement with the IRS to pay the tax debt. Also keep in mind that your tax debt accumulates interest and penalties, so it may take longer than you initially think to pay the debt in full.
How the IRS Collects Unpaid Taxes
You’re probably curious to know how the IRS collections process works. What does it take for the IRS to get to the point where it has to collect unpaid taxes through wage garnishments?
The IRS sends out letters that are automatically generated. The collections process starts the moment you file taxes and don’t pay taxes in full on time.
You’ll receive a letter with the amount owed and the interest and penalties. If you don’t respond or pay your tax debt, you’ll get more letters.
The process will escalate for months until you start getting certified letters in the mail. This is for the IRS to prove that it has taken proper action before garnishing your wages.
There are a lot of people who will call and demand payment over the phone. These people are committing fraud.
How to Stop Wage Garnishments from Happening
After learning more about how the IRS collects tax debt, you’ll see that there are a lot of opportunities to work with the IRS to prevent wage garnishment. If you want to prevent garnishment from happening, you cannot ignore the letters from the IRS.
Here are a few things that you can do to work with the IRS and prevent wage garnishment from happening.
Ask for Non-Collectible Status
If you have no money to spare, you could ask for non-collectible status. Your spouse may have lost their job and your income is to support your family.
In this instance, the IRS will stop all collections activity for a specified period. That’s usually between 6-12 months.
Apply for an Offer in Compromise
An offer in compromise is where you make an offer to the IRS to pay less than you actually owe. While it sounds great, not many of these applications get accepted.
It’s also a long process that can take up to 24 months to complete.
Get Help with IRS Wage Garnishment
Owing money to the IRS can be a very frightening situation that can cause you to lose sleep. There are many collections tools the IRS can use to collect unpaid taxes.
One of them is an IRS wage garnishment. This is where your employer is instructed to withhold a part of your earnings, which is then sent to the IRS.
If you owe the IRS, you don’t want to handle the situation alone. Contact our office for a free consultation and find out how we can help you resolve your tax situation.