IRS Wage Garnishment Procedures
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If you owe the IRS unpaid taxes, they might collect on the debt by putting a garnish on your wages and collecting their money directly from your paycheck. Learn about the rules they must follow when garnishing wages, including how much of your income is exempt from garnishment and how much notice they are required to give you. Also, find out what you can do to stop a wage garnishment that's already in place.
Written by the Upsolve Team. Legally reviewed by Attorney Andrea Wimmer
Updated July 19, 2021
Dealing with unpaid taxes can be frustrating and scary. No one wants the federal government knocking on their door. This article will explain what happens when you owe back taxes, what courses of action the IRS can take to collect your tax debt, and what you can do to stop a wage garnishment resulting from unpaid taxes.
The IRS Can Garnish Wages For Unpaid Taxes…
Federal law gives the IRS the power to enforce wage garnishments to collect unpaid tax debt. The IRS takes into consideration the following when calculating the amount of money it can take from your wages:
Number of dependents;
Weekly disposable income; and
Even though you may be subject to a wage levy, this does not mean that all of your wages are subject to IRS collection actions. The IRS has put together a helpful table that shows what amount of your salary is exempt from IRS wage garnishment. This table takes into account taxpayer filing status and number of dependents when determining the exemption amount. This calculation is different from the calculation used in wage garnishments for child support. Tax-related garnishment is limited to the lesser of 25% of your income or the amount to which your weekly disposable income exceeds 30 times the federal minimum wage.
Wage garnishment actions aren’t always limited to your earned income. The IRS can also garnish money received in the form of:
Tax refunds; and
The IRS can also take money from your bank account and put liens on the real estate you own.
… But It Must Give Proper Notice First
Unlike private debt collectors, the IRS does not need to go to court and obtain a court order before it can garnish your wages. But before the IRS can enforce a wage garnishment, it needs to send a number of notices, which are described below.
The IRS will first send you a notice outlining your tax debt. The initial notice will specify a due date, give you a chance to satisfy your back taxes, and will outline any penalties for late payments.
Final Notice Of Intent To Levy
If you did not make a payment by the due date, the IRS will send you a second letter called the "final notice of intent to levy." You will have 30 days to make a payment to the IRS before it may move forward with a wage garnishment.
Notification Of A Collection Due Process Hearing
The third and final letter is a notification of a collection due process hearing. This document must be sent to you 30 days prior to the IRS proceeding with your wage garnishment.
Once the IRS has sent the above notices and allowed the requisite amount of notice (30 days before the notice of intent to levy and notification of a collection due process hearing), it can begin garnishing your wages.
If the IRS did not follow the correct procedure to enforce the wage garnishment, you can request an appeal conference with the IRS, which is referred to as a Collections Due Process (CDP) hearing. However, this hearing is not designed to address disputes in the amount of back taxes owed. This hearing only serves as a venue to address your wage garnishment concerns.
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How To Stop IRS Wage Garnishment
First things first. When you receive a notice from the IRS, be sure to read through it thoroughly to confirm that all the information in the letter is correct. Government entities make mistakes too! If the information is not correct, you will have the opportunity to challenge the IRS assessment and possibly prevent a wage garnishment. If you think that the IRS miscalculated your back taxes due or you don’t owe tax debt, you can request an audit consideration, which asks the IRS how they calculated the back taxes due. If you were mistakenly sent notices due to your spouse owing back taxes, you may qualify for innocent spouse relief.
Outside of the above two scenarios, it is important to note that the IRS has a three year statute of limitations in assessing any taxes against you; the statute of limitations is extended to six years if your gross income as listed on your return is off by more than 25%. There is a ten year statute of limitations on collections. Note that there is no statute of limitations for assessments on fraudulent or false returns. A statute of limitations is the period of time - as allowed by law - during which the IRS can act to enforce its rights. After this period of time “has run,” the IRS is barred from acting in regards to enforcement of a specific legal right.
If the information in the IRS letter is correct, you can stop a wage garnishment by simply making a payment of all the taxes that you owe for prior tax years and any fees that have been levied. That may not be practical for everyone though, and there are other options to explore.
You may also stop an IRS wage garnishment by working out a settlement repayment plan with the IRS. This will allow you to pay back your back taxes over a period of time. You have two options here - a short term or long term installment plan. Under the short term installment plan, you must owe $100,000 or less and be able to pay the total tax debt in one hundred twenty days or less. Under the long term installment plan, you must owe $50,000 or less in tax, penalties, and interest, and must be up to date in filing all individual income tax returns for prior tax years. There is an initial set up fee associated with the long term installment plan, which will be reduced if you decide to set up automatic withdrawals from your bank account. The fee may be waived if you can prove financial hardship.
It is also possible to negotiate a lower tax burden with the IRS. An offer in compromise allows you to pay back less than than the amount owed. This may be an option for you if you cannot feasibly repay the full amount of your tax debt. The IRS will take into consideration your ability to pay, your income, expenses, and asset equity. An experienced tax professional may be able to help you with this process.
Bankruptcy And IRS Wage Garnishments
You can also manage your IRS wage garnishments through a Chapter 13 bankruptcy filing. Without going into too much detail about bankruptcy, the Chapter 13 bankruptcy process allows you to combine all your debts into one payment, made monthly, over three or five years.
Additionally, bankruptcy will provide an automatic stay of collection efforts, however, there is an exception to IRS communications associated with tax debts. The IRS can send you notification of the amount of your tax debt. This is not considered a collection effort because it is notifying the taxpayer of the amount due. However, the IRS cannot attempt to bill you in such a way that would prompt payment for back taxes.
Most importantly, the IRS cannot enforce a wage garnishment without violating the automatic stay for as long as your bankruptcy case remains active.
The IRS can garnish your wages for unpaid taxes. The amount the IRS can take depends upon the number of dependents you have, your weekly disposable income, and your standard deduction. Some of your income may be exempt, for example, income from Social Security benefits. IRS wage garnishments are calculated differently than other types of wage garnishments, such as child support. Not only is your salary subject to wage garnishment but other income including commissions, bonuses, pensions and tax refunds are also subject to wage garnishment.
In order to enforce a wage garnishment, the IRS needs to send several notices: the initial notice, the final notice of intent to levy, and the notification of a collection due process hearing. If the IRS did not follow proper protocol, you can request a hearing. You may also appeal a wage garnishment if it was wrongfully assessed.
If you are facing a wage garnishment you can:
Repay the full amount if you are able to do so;
Arrange a payment plan;
Negotiate a lower rate with the help of a tax expert; or
Provide adequate information about your financial situation so the IRS can assess financial hardship.
You may also explore whether filing for Chapter 13 bankruptcy is an option for you. Bankruptcy will not shield you from IRS communication regarding unpaid taxes, but it will prevent wage garnishment and stop all collection efforts from creditors, including the IRS. Upsolve provides a free bankruptcy filing tool for those who qualify.