Getting into hot water with the IRS can be a nightmare, one many people have every year about this time. If you find yourself in a tax controversy with the IRS due to back taxes, they will stop at nothing to collect what is due. This includes garnishing your wages.
IRS Wage Garnishment Basics
If you owe back taxes, the IRS may garnish wages up to 65% of your non-exempt earnings until the debt is repaid or you make other arrangements to pay the debt. Any bonus that you might receive will be taken in its entirety, as bonuses are not exempt from a government levy.
IRS Wage Garnishment Process
Unlike other creditors, the IRS is not required to obtain a judgment prior to garnishing your wages. However, they must still follow certain due-process steps prior to the garnishment. The IRS must provide:
- written notice of the back taxes due, including an itemization of the charges – tax, interest, penalties and due date
- an opportunity for you to pay the debt or make payment arrangements
If you do not pay the debt and made no arrangements for payment, the IRS may decide to garnish your wages or apply bank levies. If that is the case, the IRS will send Publication 1494 to your employer explaining how to calculate the exempt amount of your wages. Your employer will then provide you with a Statement of Exemptions and Filing Status to complete and return within three days. If you fail to return this statement, your employer will calculate your exemption as if you are married filing separately with one exemption.
Note: If you have other sources of income as well, the IRS can allocate the exemptions to that other income source and garnish 100% of your income from this employer.
Can I Get Fired For Having My Wages Garnished?
As of February 2017, your employer may not fire you for one wage garnishment because it is protected by the Consumer Credit Protection Act. More than one garnishment however, is not protected and you may be lawfully terminated.
Options To Get Rid of an IRS Wage Garnishment
Relief Due To Economic Hardship. If an IRS wage garnishment is causing a financial hardship, you may be able to seek relief from the levy. The IRS may release you from the levy, but you are not off the hook for paying the back taxes.
Sell Assets To Pay Off the Debt. If you can raise the funds to pay off the back taxes, the IRS will release you from the levy and mark your debt as satisfied.
Set Up A Payment Plan. The IRS will give you up to three years to pay off your tax debt. Contact them to set up a payment plan to release the wage levy.
Make An Offer in Compromise. Ask the IRS to settle for a lump settlement that is less than what you owe. This is a difficult move, but it can be worth a try. You have a better chance of accomplishing this if you hire a tax attorney.
If you are facing a wage garnishment from the IRS, know that you have options. Contact us today for a consultation.