When the IRS Garnishes Wages and How to Prevent Wage Garnishment

IRS Garnishes Wage

For many people facing tax issues, wage garnishment is the worst possible outcome. A significant portion of the United States lives paycheck to paycheck, and losing a chunk of your paycheck to the IRS can be devastating. If you are facing tax issues, it is important to understand all the potential outcomes of your current situation and take control of it. 

Wage garnishment is often the tax agency’s solution for taxpayers who have unpaid tax debts or who have been non-compliant with previous IRS payment agreements. Keep reading to learn more about the basics of wage garnishment, when it’s used, how much the IRS can take, and how you can protect yourself from wage garnishment. Panicking over your tax situation and unsure how to proceed? Use TaxCure to find a tax professional who can help you—TaxCure is a curated directory of tax professionals from around the country who focus on tax problems. When you search for a tax pro with TaxCure, you can check out reviews and profiles for many different pros, and you can also narrow down your search based on experience (even wage garnishment) and location.

Why Does the IRS Garnish Wages?

The IRS rarely jumps to wage garnishment as its first solution for unpaid taxes. Generally, it only turns to this option when payment demands have been ignored, tax returns have not been filed, and other attempts to recover payments have been unsuccessful. When the IRS cannot reach any other type of agreement with a taxpayer, they may move to a tax levy

A tax levy gives the IRS the authority to garnish wages, seize money held in bank accounts, or seize and sell assets. The IRS's goal is to get what they are owed, and they turn to wage garnishment if they feel it is their best option.

What the Law Says About Wage Garnishment

Under federal law, the IRS is allowed to garnish wages. Per Internal Revenue Code (IRC) Section 6331, the IRS may impose a levy on all non-exempt property or rights to non-exempt property in order to cover the amount owed. A very small amount of wages are considered to be exempt, but the rest are non-exempt property, meaning the IRS can take them.

The law also requires employers to comply with tax wage levies against their employees. When the IRS sends the proper notices and paperwork to an employer, the employer must turn over the amount the IRS is allowed to garnish until the levy is released. They can face legal issues and steep financial penalties if they do not comply.

The IRS Doesn’t Always Garnish Wages—When Do They Pursue This Option?

In general, the IRS files a tax lien before moving to a tax levy. Levies are expensive and time-consuming for the IRS, and they would much rather collect the amount they are owed via other means. But if you ignore tax bills, levy warnings, and other communication from the IRS, they are likely to move forward with a levy. 

Due to the work and money involved in wage levies, the IRS is more likely to go this route for taxpayers who have sizable tax bills. Generally, that means the IRS won't garnish your wages unless you owe at least $10,000, but the IRS can garnish wages for lower amounts of debt. They are just less likely to garnish wages if you owe a negligible amount. Still, that does not mean you should rest easy if you don’t have sizable back taxes. You should still take a proactive approach to settling your tax problems.

That said, the IRS will generally resort to wage garnishment before exploring a property levy. Seizing your physical property and auctioning it off is a lot more time and labor-intensive than sending a notice to your employer and garnishing your wages. 

Notices You Receive When the IRS Garnishes Your Wages

The IRS must go through specific steps to garnish your wages. First, they must assess your taxes and send you a Notice and Demand for Payment. This is your tax bill. Paying this upon receipt is the easiest way to avoid wage garnishment. The standard process they generally follow is sending a CP14 Notice, then a CP501, then a CP503, and then a CP504 notice. After this it is likely they will move to some sort of levy after no response to those notices. 

If you ignore the tax bill and do not either pay in full or make other payment arrangements, the IRS may move forward by sending you a Final Notice of Intent to Levy and Notice of Your Right to a Hearing. This notice must be sent at least 30 days before the levy takes effect. You’ll receive the notice by registered mail or at your place of employment. This is one reason it’s so important to keep your address updated with the IRS and other financial agencies; those who move frequently or forget to update their address may not realize they are in trouble with the IRS until their employer contacts them.

In addition to sending notices to you directly, the IRS will also send Form 668-W to your employer if they are moving forward with wage garnishment. Your employer will then give you paperwork to fill out to determine how much the IRS can garnish. What they garnish depends on how many dependents you have and your tax filing status. The chart on Publication 1494 is helpful for calculating this.

A Revenue Officer is Involved—What Does That Mean?

IRS revenue officers are agency employees who attempt to collect delinquent taxes and get taxpayers to submit overdue tax returns. In general, they prefer to help taxpayers come to a payment agreement with the IRS, rather than impose a levy. However, if it is impossible to come to an agreement, they will move forward with other enforcement actions. 

This is one reason we encourage you to be proactive when it comes to delinquent taxes; inaction can be perceived as a refusal to pay, which may lead to more aggressive collection tactics.

In general, when a revenue officer is involved in your tax problems, you should expect the process to move fairly quickly. They are committed to collecting what you owe—collecting your tax debt is on their to-do list when they come to work every day. While they would prefer to come to an agreement with you regarding a payment plan, they will not hesitate to levy your income if necessary.

However, having your wages garnished doesn't require a revenue officer. Accounts that have not been assigned a revenue officer are in the IRS's automated collection system (ACS). The automated system can initiate the wage garnishment process. 

Exceptions to the 30-Day Rule: Wage Garnishments Without Notice

In the majority of cases, the IRS cannot garnish wages any earlier than 30 days after sending you a notice informing you of their intent to levy. However, there are situations in which the 30-day notice period is not applicable. They include:

  • When the IRS feels that the collection of the delinquent taxes is in jeopardy. This includes if the taxpayer is likely to flee the country, put their property out of reach of the government, or otherwise dispose of their assets
  • When you have requested a CDP hearing for payroll or employment taxes in the previous two years
  • When the delinquent taxpayer is a federal contractor.

How Much the IRS Can Take and What You Can Expect

When other types of debt lead to wage garnishment, the amount seized is usually just a percentage of the individual’s income. Tax debts are handled differently—but how much of your paycheck can the IRS garnish? The IRS decides how much an individual needs to survive based on their family size and filing status. The amount they calculate is how much you can exempt from your wage garnishment, and then, the agency can take everything over that amount.

For example, Publication 1494 indicates that someone filing Head of Household with two dependents could exempt $613.45 on a weekly basis. The IRS could technically seize anything above that amount (once income and FICA taxes have been deducted). If you go through the figures listed on Publication 1494, you’ll notice that the amount of money the IRS lets you keep is quite low. It may not even be enough to cover your basic expenses. 

That’s one reason you must address tax issues as promptly as possible. The earlier you begin working with a tax professional to settle your tax debt or come up with a payment plan, the less likely it is you will end up having your wages garnished.

If the IRS takes so much that you are struggling to get by, they do allow you to contact them to discuss your financial situation. Should they determine that the levy is causing an immediate economic hardship, they may opt to release the levy. This does not erase your tax debt; you are still obligated to pay it, but the IRS will then pursue other options, such as a payment plan.

Types of Payments the IRS Can Garnish

The IRS can garnish hourly wages, salary, bonuses, fees, commissions, and other types of compensation you receive from your employer. This can be particularly painful if you receive a holiday bonus or any other type of windfall. Assuming that your exempt amount was paid to you during the pay cycle in which your bonus was paid out, the IRS can seize the entire bonus.

There are some limits to what the IRS can take. For example, if there is a child support order in place before the levy is initiated, the amount you pay can be released from the levy. Note, though, that you can either have the child support amount released or claim the child as a dependent for purposes of calculating your exempt income. You cannot do both.

How to Prevent Wage Garnishment

The easiest way to avoid wage garnishment is to file your tax returns on time every year and always pay your taxes in full. Should you fall behind on taxes, paying the full amount due as quickly as possible is your next best option. However, people rarely end up in this situation because they have enough money to pay in full—that’s why it’s important to take swift action at the first sign of tax trouble. 

The IRS is generally more than willing to work with taxpayers who have hit hard times or are struggling to keep up with their taxes. You may be able to set up a short-term or long-term installment plan that allows you to spread your payments over time, an option that can also save you money in penalties that accrue the longer you wait to pay.

Other options are available for those who want to decrease the amount of tax debt they owe. Possible options include innocent spouse relief, offer in compromise, currently not collectible status, and penalty abatement.

How to Stop a Wage Garnishment

There are several ways to stop a wage garnishment. If you're still within the 30-day warning period, you can appeal. If you're past that point, you may still be able to request an equivalent hearing. Once the garnishment is in place, you may be able to stop it by proving economic hardship, applying for an offer in compromise, or potentially setting up a payment plan. 

Before you consider any DIY solutions to your garnished wages, please talk to a tax professional. There is a lot of bad advice out there, and following it can make your problem worse. For example, it’s common for people to job-hop in order to avoid wage garnishment. This is an oft-passed-around piece of advice that really doesn’t help you. 

The IRS is persistent when it comes to collecting debt, and they will simply follow you to each new job you get and garnish you there. Either way, your wages will be garnished until the entire amount (including penalties and interest) is paid, so it doesn’t make sense to delay the inevitable this way.

FAQs About When the IRS Garnishes Wages

Here are answers to some additional questions you might have about the timing and processes for wage garnishments. If you have additional questions, reach out to a tax professional for help.

When will the IRS garnish wages?

The IRS will garnish your wages if you have unpaid taxes and you don't respond to IRS notices. Before garnishing your wages, the agency will send you a notice that gives you 30 days to request a hearing or suggest another payment arrangement.

Can the IRS garnish wages without warning?

Generally, no. The law requires the IRS to give taxpayers ample warning before garnishing their wages. The IRS must give taxpayers 30 days to dispute the garnishment. However, in rare cases such as a jeopardy levy (ie, where the IRS believes that it will not be able to collect the money without acting instantly), the IRS doesn't have to give you a 30-day warning.

How do I know if the IRS garnishes my wages?

The IRS will send you several notices. Then, your employer will advise you about the garnishment when they receive letters from the IRS. Finally, you will see a smaller paycheck, and you will see IRS wage garnishment listed in the deductions section of your pay stub.

How long does it take for the IRS to garnish wages?

The IRS waits varying amounts of time before resorting to wage garnishment or asset levy. Typically, these actions don't happen until your tax debt has been unpaid for a significant amount of time. The process can take years from the filing date in some cases, but if a revenue officer gets assigned to your case, the process tends to go a lot faster. Once you get the final notice of intent to levy, the garnishment is just 30 days away.

Get Help With IRS Wage Garnishment

It’s important to note that everyone’s tax situation is unique, and the options available to another delinquent taxpayer may not be a good fit for you. That’s why we recommend connecting with a CPA, tax attorney, or EA who can look at the details of your situation and help you find a path forward. 

Taking the initiative and deciding to address this problem head-on may help you avoid wage garnishment and other negative outcomes. Use our directory of local tax professionals to find tax experts in your area who can guide you to the best solution for your needs. TaxCure is designed to help you find local tax professionals so that you can avoid the big, rip-off tax resolution firms and get the personalized, high-quality, local tax help you really need.

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