Wage Garnishments and Levies for Unpaid MN State Taxes
Learn How to Avoid, Reduce, and Stop MN Tax Levies
If you don't pay your personal or business taxes in Minnesota, the MN DOR can take matters into its own hands and force you to pay. To get the funds without your cooperation, the state may garnish your wages or levy your assets. This can be stressful and financially devastating.
To avoid a state tax levy, pay your MN taxes in full, or contact the DOR to set up a payment plan or make other arrangements on your tax debt. Need help? Then, use TaxCure to find a local tax pro who has experience with the MN DOR. In the meantime, keep reading to learn about wage garnishments and asset levies in the land of 10,000 lakes.
What Is a State Tax Levy?
A state tax ley is when the state takes your wages or assets or unpaid taxes. In Minnesota, the DOR can seize real estate, personal property, investment accounts, and payments from third parties. The DOR can also garnish up to 25% of your wages.
How to Avoid a Wage Garnishment/Levy in Minnesota
If you want to protect your wages and assets, be proactive about dealing with your tax debt. If you cannot afford to pay, apply for an offer in compromise or talk to the DOR about financial hardship status.
The DOR will send you several notices before starting a tax levy, and you need to make sure that you respond. Once the state starts the levy process, it can be impossible to reverse. Even setting up a payment plan doesn't reverse most tax levies in MN.
Types of Tax Levies in MN
If you don't pay your taxes in Minnesota, you may be subject to the following tax levies. The MN DOR can use these levies against individual or business taxpayers.
The MN DOR can seize the funds in your bank account if you don't pay your taxes. After receiving the levy notice, the bank holds your funds for 10 days. If you don't pay your tax bill or prove the funds are exempt during that time, the bank will send the money to the DOR.
To prove the funds are exempt, send the DOR a bank statement that shows the deposits that add up to the levied amount. Then, if the deposits are related to exempt funds, the DOR will release the levy, but your bank may charge you a fee for dealing with the levy.
Several different funds are exempt from bank levies in MN, including Supplemental Security Income (SSI) and 75% of wages for 20 days after deposit.
The DOR can also levy your investment accounts if you don't pay your taxes. Your investment company will freeze your accounts as soon as they receive the levy notice from the state. If you don't pay the debt in full with secured funds, your investment company will send the funds up to the amount of your tax debt to the DOR after 10 days.
If your tax debt is less than the amount in your investment accounts, the investment company will liquidate everything, subtract fees and commissions, and send the rest to the DOR. However, if the value of your investments exceeds the amount you owe, the DOR will only send a portion to the DOR.
You have seven days after your funds are frozen to let the investment company know which funds you want to be liquidated. If you don't, the investment company will start with the investments that were purchased the most recently. This can generate realized gains and capital gains, which will create even more tax consequences.
Continuous Third-Party Levies
The MN DOR can continuously levy payments due to you from any third party. This includes payments to 1099 freelancers, dividends, rents, royalties, distributions from trusts, and any other type of periodic payments.
For example, if you own a rental property, the DOR can contact your renters about the continuous levy, and then, instead of sending rent to you, your renters will send the funds to the DOR.
If you're an individual, the levy will apply to 25% of the funds. For example, if you're due $1,000 in dividends, your fund manager will send $250 to the state and $750 to you. The levy applies to 100% of payments due to businesses. These levies are continuous. They stay in place until you pay your tax debt in full or you get relief due to an exemption.
The DOR can also issue one-time levies to third parties. One-time levies are 100% of the payment due to you, regardless of whether you're an individual or a business.
The DOR can also seize your real or personal property. This includes homes, investment property, vacant land, vehicles, furniture, boats, and collectibles. Before entering your property, the DOR must get a court order from a district court judge that lists the property they intend to seize.
The MN DOR can also take the contents of safes, vaults, cash registers, and similar receptacles. This is sometimes called a cash drawer levy.
Once the state takes your assets, you can get them back if you put up a surety bond or make a secure payment. The payment must be equal to the amount of your interest in the seized property, and this can be worth up to double the tax debt.
Also called a wage levy, a garnishment is when the DOR seizes part of your income to cover your unpaid taxes. The DOR can also initiate wage garnishments for debts due to other agencies, such as unpaid child support.
The DOR will send a notice to your employer, telling them to garnish your wages. Your employer must abide by these rules — if they don't, they can become personally liable. The garnishment will be 25% of your pay after other required withholdings. Note your boss cannot fire you or punish you for wage garnishments — that is illegal in Minnesota.
Exemptions to Wage Levies in MN
The DOR cannot levy your wages if you've been in jail or prison during the last six months or if you have received any of the following benefits in the last six months:
- Food stamps
- General or medical assistance
- Emergency assistance
- Energy assistance
- Minnesota Family Investment Program
- Supplemental Security Income (SSI)
- Minnesota Supplemental Assitance
If the state starts garnishing your wages and you believe that you're exempt, file an Exemption Claim form and attach documents that prove your claims. For example, if you're on food stamps note that and then include a copy of your determination from the state.
How to Reduce a Wage Levy in MN
If the wage garnishment prevents you from covering essential bills, reach out to the DOR and ask them to reduce the levy. You may need to prove that you need more income for food, rent, or healthcare. Once you do, the state will send a letter to your employer instructing them to reduce the amount of the wage garnishment.
How to Stop a Wage Garnishment
You can do the following to stop a wage garnishment for unpaid taxes:
- Pay the tax bill in full.
- Prove that you're exempt due to recent imprisonment or past/current public assistance.
- File bankruptcy — Note that bankruptcy does not wipe out all tax debts, but the garnishment will stop while the stay is in place.
Unfortunately, if you set up a payment plan, the DOR will not stop the wage garnishment. The DOR also will not stop an existing levy/garnishment when you apply for an offer in compromise. However, in both cases, the state won't start new collection actions when you apply for these programs. That's why you should try to make arrangements for your tax debt before the DOR starts involuntary collection actions.
If you have multiple garnishments for other unpaid bills, the DOR may be forced to stop the garnishment for tax debts — by law, and you get to keep some of your income even if you owe a lot of different debts. For example, IRS wage garnishments and garnishments for child state and federal student loans take priority over MN tax wage garnishments. So if other garnishments drop your income too far, the state won't be able to garnish your wages for unpaid taxes.
Get Help With State Tax Levies
If you're dealing with a Minessota tax problem, you need to work with a tax pro who has experience in your local area, but unfortunately, that can be hard to find. That's where TaxCure comes in.
With TaxCure, you can search for tax professionals who have experience with the MN DOR, and then, you can narrow down your search results to find a pro who has expertise with your unique concern. Don't let the state take your assets or garnish your wages. Instead, find a local tax pro and get help today.