Dealing with financial problems as a self-employed individual is stressful enough, especially when the IRS gets involved. The fear of having your wages taken to pay off tax debt can be overwhelming. But understanding how the IRS handles wage garnishment, why it happens, and how it affects people is the first step towards taking control of your finances. The IRS doesn’t just instantly take a portion of your income – there is a specific process they follow before collecting.
By learning about this process, the limits to what they can take, and ways to avoid or stop wage garnishment altogether, you can take charge of your situation and ease your anxiety. Read on so you can understand your rights and know your options.
What is Wage Garnishment?
Wage garnishment is a legal procedure in which an employer withholds a portion of an employee’s earnings as directed by an order or a legal judgment, primarily to pay off debts. This can happen for various types of debts, including child support, defaulted loans, and unpaid taxes.
Can the IRS garnish your wages? Yes, they can. When it comes to federal taxes, the IRS can initiate a wage garnishment, also known as a levy, without obtaining a court order, making it a useful tool for collecting overdue taxes. The garnishment remains in effect until the full debt is paid off or arrangements are made to address the outstanding taxes.
The Basis for IRS Wage Garnishment
The IRS will garnish your wages as a last resort when your taxes are not paid on time, and when repeated attempts to reach out and work out a solution have failed. Before taking this step, they’ll send several notices, warning you about the overdue taxes and possible consequences. This usually happens only when other collection methods, like payment reminders, offers to set up payment plans, and notices of intent to levy, did not work.
The Process of IRS Wage Garnishment
The process of IRS wage garnishment begins well before any money is actually taken from a taxpayer’s wages. First, the IRS assesses the tax and sends a tax bill to the taxpayer, which is the initial step in the collection process. If this bill is not paid, or arrangements for its payment are not made, the IRS will then send several more notices. Among these is a “Final Notice of Intent to Levy and Your Right to A Hearing” at least 30 days before the garnishment is set to begin. This notice is the taxpayer’s final warning and also provides an opportunity to challenge the garnishment through an appeal or request a collection due process hearing.
During the garnishment, the IRS determines the amount to be garnished based on the taxpayer’s dependency exemptions and standard deductions, leaving the individual with a certain amount of income to meet basic living expenses, known as the exempt amount. If the taxpayer does not negotiate with the IRS, respond to notices, or participate in the hearing process, the IRS will proceed with the garnishment by contacting the taxpayer’s employer, who is then legally obliged to deduct the specified amount from the employee’s paycheck until the debt is resolved.
How Much Can the IRS Garnish from Your Wages?
The amount the IRS can garnish from your wages is not a blanket percentage but is instead calculated based on your filing status, dependents, and the standard deduction applicable to your situation. The IRS follows a set table that determines the exempt amount from garnishment—essentially the portion of your income needed to cover essential living expenses. What remains after these exemptions can be taken in full, which in some cases, could be a significant portion of your income.
For instance, a single individual with no dependents might find a larger portion of their wages garnished compared to someone with multiple dependents. The precise calculation is complex and takes into account the taxpayer’s total financial picture to ensure that the taxpayer is left with enough income to pay for basic living expenses.
Effects of IRS Wage Garnishment on Employment and Finances
IRS wage garnishment can carry heavy implications for both your employment and personal finances. From a financial perspective, the direct impact is a reduction in take-home pay, often significantly. This reduced income can make it challenging to manage expenses, leading to financial strain and potential debt accrual in other areas.
On the employment front, while federal law prohibits an employer from firing an employee solely because of a single wage garnishment, the presence of a garnishment order can strain the employee-employer relationship. There’s often a stigma attached to wage garnishment, with potential impacts on professional reputation and future employment opportunities, especially in roles that require handling finances. The psychological stress of dealing with garnishment, coupled with financial hardship, can also lead to decreased productivity and job performance, further endangering the garnished individual’s employment and financial security.
Strategies to Prevent IRS Wage Garnishment
Preventive strategies should always be implemented to avoid the stress and financial difficulty of wage garnishment. The most effective approach is to be proactive with tax obligations. Filing returns on time, even without immediate payment, can avoid automatic penalties and signal to the IRS a willingness to comply. If you’re unable to pay the full amount, contacting the IRS to arrange a payment plan or offer in compromise may keep wage garnishment at bay. These options allow you to address what’s owed in a manner that’s feasible for your financial situation.
Maintaining open communication with the IRS when you receive notifications about unpaid taxes can also be instrumental in preventing garnishment. Ignoring these notices is the worst course of action, as it typically leads the IRS to proceed with more severe collection mechanisms like garnishment. Responding promptly and negotiating payment terms can often halt the process before it begins. Additionally, if your situation qualifies, applying for “Currently Not Collectible” status may postpone collections until your financial condition improves. Lastly, seeking the advice of a tax professional can help navigate complex tax issues and potentially stave off IRS collections altogether.
How to Stop an Ongoing IRS Wage Garnishment
Once the IRS opts to garnish your wages, it can seem daunting, but it’s possible to stop it. The first step is to directly address the tax debt. You can pay the amount in full, which will immediately cease the garnishment. If that’s not feasible, consider arranging a payment plan or offering a compromise where you pay less than the amount owed if you prove that the full payment would cause financial hardship. If you have a significant change in your financial situation, you can also appeal for a garnishment release or modification.
It is also critical to verify that all tax filings are up-to-date, as the IRS typically requires this before considering cessation of garnishment. Communicating with the IRS and demonstrating a commitment to resolve the issue is key. Hiring a tax professional or attorney who specializes in tax disputes can offer assistance in negotiating with the IRS and securing a release from the wage levy.
Seek Professional Tax Help Today
At Creative Tax Solutions, we understand the overwhelming feeling of facing wage garnishment due to federal tax debt. That’s why our team of tax specialists is here to offer immediate, professional support to stop the garnishment and guide you through the intricacies of dealing with the IRS.
We take a personalized approach with each client, carefully assessing your unique situation to create a customized strategy aimed at achieving the best possible outcome. Whether that means negotiating a manageable payment plan, proposing an offer to reduce your total debt, or helping you demonstrate financial hardship to qualify for currently not collectible status, we have a range of solutions to help you.
Our priority is to restore your financial well-being and peace of mind by stopping wage garnishment and securing your future, all while ensuring you remain compliant with federal tax laws.
Contact us today to schedule an appointment.
