If the IRS is garnishing your wages, there are a few things you need to know before you can make it stop.
In this article, we’re exploring a few options so you know how to stop IRS wage garnishment.
How to Stop IRS Wage Garnishment
While keeping track of your taxes can be a chore, it’s one the government can enforce quite effectively. The IRS has several tools at its disposal to ensure that taxpayers are pressured into keeping up with their respective deadlines every tax season, some of which can place a major financial strain on you and your family. One of these is IRS wage garnishment.
Unless you can prove that the IRS made a mistake, the only ways to stop IRS wage garnishment are by paying your back taxes, negotiating a payment plan with the IRS, convincing them that the levies are causing undue hardship, or filing for bankruptcy.
Explaining IRS Wage Garnishment
When the IRS determines that you owe them money, they rely on so-called collection actions to coerce payment. Debtors will be subject to a number of increasingly aggressive actions, beginning with warnings, penalties, and accumulated interest, and ending with the seizure of wages, property, and accounts.
An IRS wage levy or IRS wage garnishment is often the last resort for the agency when all other efforts to collect on the debt have failed. IRS wage garnishment involves taking a portion of your monthly wages until your tax debt is completely paid. The IRS leaves the taxpayer with enough to live off, based on their own calculations. The more dependents a taxpayer has, the less the IRS takes.
The first collection action the IRS will typically take is the federal tax lien. This is a legal claim on all your assets and property until your tax debt is paid. It ensures that the government stays first in line to be paid should you liquidate any assets or come into some money.
With a tax lien, the IRS can’t take anything from you, but they can supersede all other creditors and hamper any efforts to get credit or start a secured loan. When a tax lien is ignored, the IRS may step things up with a Notice of Intent to Levy, signifying that they will begin claiming assets, property, accounts, and wages until the debt is fully paid.
While assets and property can be seized by the IRS directly, IRS wage garnishment occurs through your employer. A self-employed taxpayer in debt to the IRS may instead see an asset or account claimed by the government. Unlike wage garnishment, an account or property levy is a one-time action. If the value of the account or property exceeds the total debt, the IRS will return the remainder. If it isn’t enough, the IRS may issue a second levy (and so on).
Of course, most taxpayers in debt to the IRS aren’t deliberately avoiding their yearly tax goals. Sometimes, financial hardship can lead us to miss a payment or two. At other times, simple mistakes on tax returns can lead to a small debt, forgotten or overlooked in the middle of a move or stressful event.
While the IRS can utilize levies to claim what it is owed, there are ways to successfully negotiate with the government, and potentially even reduce the payable amount and stop the garnishment of wages.
When Does the IRS Garnish Wages?
Not all tax debts are equal. The IRS will not garnish your wages for a tax debt of a few hundred dollars. Taxpayers with a debt of less than $10,000 are usually exempt from collection efforts until their debt reaches that point. Tax debt accumulates interest over time, and there are penalties for failing to pay before the IRS’s deadline (10 days after receiving a Notice of Deficiency). The longer you ignore even a small federal tax debt, the more it will grow.
Once a taxpayer reaches a debt of at least $10,000, the IRS will begin seeking ways to collect the debt, usually beginning with a Notice of Federal Tax Lien. Liens remain even after filing for bankruptcy or declaring yourself uncollectable (due to financial hardship). Should the IRS deem it necessary, the last action they will take is a claim on your property, assets, and/or wages through a levy.
How Much Does the IRS Levy?
The amount of money the IRS takes from you depends on what you earn, where you live, and who you live with (or more accurately, who you support). Spouses filing jointly may both be affected by IRS wage garnishment.
You can figure out exactly how much of your wages are exempt from garnishment in 2021 via the IRS’s Publication 1494. To garnish your wages, the IRS will send your employer a Form 668-W and task them with withholding the correct amount.
Stopping IRS Wage Garnishment
The simplest way to stop IRS wage garnishment is by paying your back taxes. This does not mean you have to pay the entire amount at once.
The IRS offers different ways to set up a short-term (within 120 days) or long-term (within more than 120 days) payment plan, and often stops its collection efforts once you’ve proven that you can make your payments as promised. Eligibility includes reducing your debt to a certain amount, making more than three consecutive payments, and having never been late in making payments to the IRS before.
If you can’t pay your back taxes even within the span of multiple months, you may have a shot at setting up an offer in compromise through a tax professional. This is an offer you must make to the IRS first, by giving them an accurate estimate of what you can afford to pay every month.
The IRS will require financial information from you to determine their own reasonable collection potential for your case, and then will either agree or decline your offer. A tax professional can help you pre-qualify and set up a realistic offer. Discover how to choose a tax professional for your needs.
For taxpayers in dire financial need, you do have the option of arguing financial hardship as a result of the wage garnishment. If the IRS agrees, they will postpone all collection efforts until your financial situation improves (your debt will continue to accumulate interest, and the IRS can continue to file liens against you).
Get Professional Tax Help
Dealing with the IRS when you’re in debt isn’t easy, especially when there are external sources impacting your finances like the COVID-19 pandemic.
There are strict requirements to meet before they lift their collection actions, and the wrong move can cost you time and increase your debt. A tax professional can help you navigate these waters and figure out the best path towards tax debt resolution.
Get started with a free tax consultation today.