An IRS wage garnishment is financially crippling. The IRS can take almost your entire paycheck, leaving you crumbs. They do not care about other debts, like credit card or cell phone bills.
The IRS will continue to keep significant portions of your money until the debt is paid in full, other payment arrangements are made, or you are forced to declare bankruptcy.
Consequences of Non-Payment of Taxes
Not filing or paying taxes can result in many consequences. The IRS has very little limitations of power when it comes to resolving your outstanding debt.
- Owing over $50,000 may impact your ability to get a passport and travel
- Liens that make future loans, including mortgages or refinancing, impossible
- Penalties will accumulate every month
- The IRS will file tax returns for you and charge you what they determine you owe
- Harassment from collection agencies
- Levy of bank accounts, investments, retirement plans, and even life insurance policies
- Potential jail time
The first financial step they will take is usually wage garnishment.
How Much can the IRS Garnish?
If you receive notification from the IRS about wage garnishment, you must act immediately. Once the IRS contacts your employer, you only have a few days to declare your dependents and filing status. Your employer cannot deny the IRS’ demands to garnish your wages.
The amount of money the IRS leaves you will not pay the average mortgage or rent. The IRS doesn’t care about any other outstanding debts, like credit card or cell phone bills. Any installment loans, car payments, or student debt is not taken into consideration by the IRS.
Any bonuses you receive at work will be taken in their entirety by the IRS. They consider any amount of money above your exempted amount to be theirs until your debt is paid. This includes any commissions or fees for services rendered.
The IRS can take more money from your checks than other creditors. Unlike other creditors, the IRS does not need any form of judgment to start taking your money.
The IRS doesn’t have to stop there, though. Depending on how much money is owed, they can take your car or your home. They can drain your bank accounts and clean out your investment portfolio, too.
Wage garnishment isn’t just for the IRS. If you owe state and local taxes, these entities can take money from your check as well.
How Did I Get Here?
The IRS sends notices and warnings prior to garnishing your wages or seizing your assets. It must send an initial demand for payment, an Intent to Levy notification, and a notification of your rights to a hearing. This hearing is called a “Collections Due Process” and while it can stop the wage garnishment for a time, it isn’t used to dispute your tax amounts owed.
You must request a hearing within thirty days of receiving your “Intent to Levy” notice. The IRS wage garnishment can begin thirty days after this notification if you don’t respond.
The IRS will send a notice to your employer. In turn, your employer notifies you of the garnishment.
You will only have three days to fill out a form declaring your dependents. If you don’t fill out this form, the IRS will treat the taxpayer as “single” and will take the maximum amount of money from your checks.
The IRS has a statute of limitations of three years for taxes owed on filed returns. If you have unfiled tax returns, the IRS has no statute of limitations. It will frequently reach back several years and file one for you. When this happens, they will not take any deductions and will consider your filing status as “single.”
Once the IRS files your return, it begins to assess penalties and fees from the date the return was originally due. In no time, even a small tax debt will reach thousands of dollars.
It’s important to file your taxes, even if you file late. This stops the clock on the mounting penalties for unfiled taxes.
What Can You Do If You Are Facing IRS Wage Garnishment?
Calling it a “wage garnishment” isn’t entirely accurate. The IRS can keep up to 15% of your social security payments, too. In addition, it can withhold money from pensions and retirement accounts.
While the IRS can’t take your payments in their entirety, they can take enough from each check to make it impossible to pay basic living expenses, including rent or mortgage.
The best way to deal with a wage garnishment is to respond to the IRS when it sends you notices. You will receive several warnings before the IRS attaches your wages.
If you have received a notice of intent to garnish wages, it’s still not too late. You have thirty days to contact the IRS and make an arrangement.
Do not ignore the official notice of IRS wage garnishment. If the situation has gone far enough to warrant wage garnishment, your options are limited. There are a few things you can try, though.
Collection Due Process Hearing
A Collection Due Process Hearing is one way to stop the process immediately. You must respond with your request for this hearing within thirty days of the date given by the IRS in the notice of intent to garnish your wages.
A Collection Due Process Hearing is conducted by an agency that is not connected to the IRS itself. You won’t be allowed to debate the amount you owe during this hearing, but it can delay your wage garnishment. You will be expected to give a good reason for nonpayment of the debt or show willingness to make a payment arrangement.
To apply for your Collection Due Process Hearing, fill out this form and mail it directly to the revenue officer listed on your notice. It’s a good idea to get in touch with a law office that deals with the IRS at some point during this time to allow them to create a case for you to present at the Hearing.
IRS Uncollectible Status
You can try to prove that you are incapable of paying your tax debt. This requires a lot of documentation. You will be expected to account for your living expenses in detail.
The IRS will have much lower expectations for living expenses than you do. They disqualify any credit card payments or other revolving debt from your cost of living. The IRS has set standards and guidelines for qualifying for uncollectible status.
The uncollectible status may be a temporary solution. The IRS will revisit your case to make sure you still meet the requirements of this status. If it’s determined you no longer meet the guidelines of an uncollectible status, collection efforts will resume.
File Your Back Taxes
If you haven’t filed taxes, the IRS is basing your debt on its own determination of your taxes due. Filing your taxes may result in a lowered amount due. This will require the IRS to recalculate all of your penalties and interest.
It pays to have your back taxes filed by a professional. If your taxes can show that you did not owe money, you may still be on the hook for the non-filing penalties. This amount will be significantly less than the IRS claims you owe.
You cannot claim any refund due three years or more in the past.
Offer in Compromise
The IRS frequently takes smaller amounts of outstanding debt and writes the rest off. They understand that a percentage of the debt owed is better than receiving nothing.
The IRS doesn’t want to spend money trying to collect an outstanding debt. They certainly don’t want the complications of a wage garnishment or having to place liens on your property.
You can make an offer in compromise to the IRS. This agreement states that you will pay a certain amount. The IRS forgives the rest of the balance due.
Once your offer is accepted and you pay the agreed amount, your IRS debt is settled.
Payment Installment Plans
The IRS takes monthly payments on outstanding debt. You must contact them and have an official agreement drafted. Once you make a payment plan, the wage garnishment process will stop.
Pay the Balance
Pay the Balance
The IRS wants its money. It doesn’t care where the funds come from as long as they are paid. If you aren’t disputing the amount owed, you may choose to pay it off.
One option to pay the debt is a zero-interest credit card. You can spread your payments out over the term of the credit card. You will be off the hook for the additional interest charges and penalties charged by the IRS every month.
A low-interest personal loan may be another option. The interest rates on a loan are lower than those charged by the IRS. In addition, you will stop the penalties charged monthly by the IRS.
Reduction of Penalties and Interest
The IRS may be willing to reduce the outstanding debt’s interest charges and penalties.
The IRS is very strict regarding penalty abatement. A professional tax advocate knows how to file for this kind of relief.
Bankruptcy is an extreme step. It will leave a black mark on your credit for years, Your ability to buy a house or apply for any credit will be negatively affected for up to seven years from the date of the bankruptcy.
Filing bankruptcy doesn’t always mean your IRS debt will go away. There are rules for including IRS debt into the terms of the bankruptcy.
Before declaring bankruptcy, consult a professional to make sure all other IRS debt-repayment options have been exhausted. Your tax lawyer can explain the different kinds of bankruptcy and help you understand which is best for your situation.
The Fresh Start Initiative
Many tax advocates are promoting the Fresh Start Initiative. This program offers three payment plans, including the Offer in Compromise. Other options are a direct debit plan and an extended installment plan. Your best bet would be to contact a professional to let them evaluate your situation and help you choose what plan is best.
A common tactic for the IRS is to hire a collection agency. There are only four agencies it works with. These are:
The IRS will notify you that your account is with a collection agency. The agency will also send you a notice along with the outstanding bill. Your case may be exempt from being sent to collections if you have a pending payment plan or are appealing the amounts owed.
You have the right to choose not to work with the collection agency. The agency must be notified in writing of your decision.
IRS Debt and your Credit History
Governmental liens on property and assets used to be reported to the credit bureau. In 2018, the rules were changed. The IRS is restricted from displaying back taxes, collections, or liens on credit histories.
Any payment plans you make with the IRS will not be reported to the credit bureau. Wage garnishments are not reported, either.
Once a lien is filed it becomes public knowledge. Creditors digging deeply enough will uncover liens on your property or assets. This could make it impossible to get a mortgage or even qualify for a loan or credit card from some banks.
A tax lien is filed by the IRS if your debt is over $10,000 and you are not in a payment arrangement.
If you sell the house after a lien is placed on it, the IRS will collect its money from the sale of the property.
Get Professional Help
Even if you received a notice of IRS wage garnishment, there are options. Some are only temporary fixes while others will settle the debt permanently.
The IRS has the power to take nearly everything if you ignore their demands. They can start the timeline of your debt over, again and again, to keep it active and clear of any statute of limitations. There is no hiding from the IRS and any debt they determine to be owed.
If you have received an IRS wage garnishment notice, contact us immediately for a free evaluation.