North Carolina Tax Garnishments
If you don't pay your taxes in Noth Carolina, the NC Department of Revenue (DOR) can garnish your wages, bank accounts, and payments from third parties. Garnishments can be professionally embarrassing, and they can also cause financial distress. Here's an overview of how they work and what to expect.
The NC DOR can garnish 100% of the funds in your bank account up to the amount of your tax debt. Generally, the bank freezes the funds for a certain number of days to give you a chance to respond, but typically, the garnishment starts before you even receive the notice from the DOR.
The bank must garnish all of the available funds when it receives the garnishment order. If you have outstanding checks or automatic payments, they will bounce or make your account negative unless you make a deposit. If you don't take action by the deadline, the bank will send the frozen funds to the DOR — timing varies, contact your bank for more details.
A wage garnishment is when the state sends a notice to your employer to withhold the delinquent tax from your paycheck. For tax debts, the state will instruct your employer to withhold 10% of your gross wages. However, your employer can garnish up to 25% of your wages for other types of debt. If your wages are already being garnished, the tax garnishment will usually be on top of the other garnishment.
Your employer will send the withheld amount to the DOR, and they will continue to do so until your liability is paid in full. The garnishment also applies to commissions, bonuses, and any other payments you receive from your employer.
Garnishments on Other Income Sources
The NC DOR can also garnish other types of income, such as rents, royalties, and contract payments. As indicated above, the state can only take 10% of wages reported on a W2, but there are no limits for these payments. The DOR can take 100% of these payments.
The state can also garnish 100% of payments paid to state vendors. Vendors are individuals or businesses who provide services to the state, and before issuing payments, the state runs your tax ID through a computer system. If you have an outstanding tax bill, the state must send the payment (up to the amount of your tax due plus interest and penalties) to the DOR.
One-time Vs. Continuous Garnishments
There are two types of garnishment: one-time and continuous. For instance, when the state garnishes the funds in your bank account, it is a one-time garnishment. The state must issue an additional garnishment if it wants to take more money from your account.
A wage garnishment, in contrast, is a continuous garnishment. It continues until the tax debt is paid in full.
How to Release a Wage Garnishment
The DOR will release the wage garnishment once you have paid your taxes in full. Your employer must continue garnishing your wages until they get a notice from the state. If you believe that you have paid in full, you can call the DOR at (877) 252-3252 to request a garnishment release letter.
In some cases, the state may consider removing or reducing a wage garnishment if you prove that you're suffering financial hardship. You may also be able to convince the state to release a garnishment if you set up a payment plan, but this is not a guarantee.
How to Avoid an NC Tax Garnishment
To avoid a tax garnishment, you need to make arrangements to take care of your tax liability before the state moves forward with enforced collections. In North Carolina, you may be able to make monthly payments, set up an offer in compromise, or take advantage of other programs.
Depending on the situation, you may be able to appeal the tax due or apply for innocent spouse relief. The right solution varies based on your situation. But in all cases, the sooner you deal with your tax debt, the easier it will be.
Get Help With NC Tax Garnishments
Struggling with an NC tax garnishment? Worried that the state is going to start garnishing your payments or bank accounts? Then, reach out to a tax professional today.
Using TaxCure, you can search for local CPAs, enrolled agents, and tax attorneys based in North Carolina. You can narrow down your search to find a local pro with the exact experience you need, and you can review multiple profiles until you find the best fit for your situation.