Wage garnishment can kill a financial dream, which makes it imperative for taxpayers to know how to stop wage garnishment.
6 Possible Steps On How to Avoid Wage Garnishment
Step 1: If Possible, Pay off the Unpaid Taxes
Garnishment Definition: a court order asking a debtor’s employer to withhold part of the debtor’s salary as payment for debts.
The IRS is after the collection of taxes, not an individual’s financial demise. If a taxpayer can afford to pay all financial obligations to the IRS, then taxpayers can rest easy about wage garnishment.
It is important to note that preparation and time are critical when it comes to taxes. There is a huge difference between the taxpayer who prepares for tax season months early and one who prepares at the last minute.
If a taxpayer still has half a year before the deadline, then preparing for taxes become easier.
As long as the taxpayer lives within his or her means and heeds practical financial advice, then the preparation process becomes a lot easier.
However, not all taxpayers can pay the unpaid taxes. Most of the time, incapacity to pay is not their fault and caused by something unexpected like a sudden medical emergency.
For taxpayers who cannot pay taxes on time for the first time, the IRS may, but not always, grant an extension which is usually 60 days.
Taxpayers can also request longer extensions, especially for those who serve in the military overseas in combat situations and those who are victims of tragedies like typhoons and forest fires.
Others prefer to file and pay taxes late, but such an action can cause tax penalties that do more harm than good. These penalties apply on top of the IRS adding an interest rate which is higher than most banks, as the IRS applies 3% plus the federal short-term tax rate.
Taxpayers can get a loan, which can cost less in the long run. Some also consider selling assets, as unpaid taxes can cost a lot of money.
Step 2: Negotiate for an Offer In Compromise
An offer in compromise basically allows taxpayers to pay a smaller amount of their unpaid taxes.
Having an OIC makes garnishment of wages moot since the IRS already has a deal with the delinquent taxpayer.
How can a taxpayer avail of an Offer In Compromise (OIC)?
First, the taxpayer must comply with the pre-qualifiers.
The first requirement focuses on any ongoing legal proceedings, particularly a bankruptcy case.
- Only when there are no bankruptcy proceedings can a taxpayer apply for an OIC.
- A taxpayer must have submitted all tax returns. For the IRS, only the federal tax returns matter, so even if the taxpayer has a state tax file due, a taxpayer can still apply for an OIC provided there are no outstanding federal tax files.
- There are also required estimated tax payments that the IRS must receive first before an OIC proceeding can follow.
- Of course, if the delinquent taxpayer has employees, then the taxpayer must also send the required tax reports for the employees as well to apply for the OIC.
An important principle to follow for better chances in getting an OIC is to show how reasonable the taxpayer’s offer is.
The IRS cares about getting a reasonable amount paid at a reasonable time. Reasonableness of a taxpayer’s offer lies on assets, income, and time left before the statute of limitations applies in favor of the taxpayer, which is usually 10 years.
Remember, an OIC still requires negotiation. The IRS can reject any OIC offer if they do not find the submitted terms reasonable.
Another benefit that an OIC provides the taxpayer is a lower tax amount payable, making the process a lot easier for taxpayers. This lower number helps the IRS collect the amounts rather than get bankruptcy cases which takes important manhours from the IRS. This is a preferable option for both parties.
For better chances at negotiating with the IRS, a taxpayer may want a more in-depth discussion about an IRS Offer In Compromise (OIC)
Step 3: Get an Installment Plan from the IRS
Sometimes, having a scheduled installment plan is better financially speaking for taxpayers. This situation is especially true for those who are undergoing temporary difficulty paying their bills.
Applying for an installment plan is a lot easier than most investors think. However, the process can take some time and effort, but the benefits can really help struggling taxpayers.
First off, there are 4 payment plans available.
- Guaranteed Installment Agreements, generally for amounts less than $50,000
- Streamlined Installment Agreements, for amounts lesser than $25,000
- Partial Payment Installment Agreements (PPIA)
- “Non-Streamlined” Installment Agreements, for amounts more than $50,000 and a payment period more than 5 years
Remember, a taxpayer can still file for an Offer In Compromise if an installment plan does not push through. However, the taxpayer should apply as early as possible, as the approval process is long and not guaranteed a positive result.
Interested taxpayers can take a look at the IRS Form 433-F or the Collection Information Statement to get an idea of what information the IRS needs.
An installment plan makes wage garnishment unnecessary.
Most taxpayers choose the electronic payment method because the IRS receives the money quickly and safely. The IRS no longer needs to contact the employer to ask for unpaid wages.
The IRS aims to get the unpaid tax amount. Whether they take it from the taxpayer or the taxpayer’s employer does not matter to them as long as tax collection is consistent.
Step 4: Postpone the IRS Wage Garnishment
If an Offer In Compromise or an installment plan is not a viable option, then there are creative but legal ways to postpone the garnishment proceedings. These actions do not require any legal forms, but they may have unintended consequences.
Do note that these two methods can work only if wage garnishment proceedings are already in court. It usually takes the IRS two months to file said proceedings.
One way to buy time with the wage garnishment proceedings is to change employers.
Changing employers complicates the legal proceedings. This complication arises from the new information that must reach the IRS and the courts will rule out any proceedings with inaccurate information.
Another is to resign from work and become a freelancer or businessman.
However, these actions carry not only financial risks but also new paperwork and tax systems. A taxpayer must think first if resigning and changing to a new tax status is worth the wage garnishment postponement of two months.
These changes affect more than taxes but also one’s quality of life and net income. Changing jobs or tax status are better taken as a last resort.
Step 5: Stop Wage Garnishment by Applying for a CNC Status
The IRS wants a solvent taxpayer rather than a bankrupt one. Taxpayers can use this to their advantage by applying for a Currently Not Collectible (CNC) status.
For a taxpayer to apply for a CNC tax status, he or she must have unpaid taxes for at least a year. Together with the delinquency requirement, the taxpayer must also prove that he or she will experience financial difficulties when said taxes and penalties apply.
To clarify, this financial difficulty does not just mean present economic problems, but also a high chance of experiencing economic trouble and even bankruptcy.
A taxpayer can apply for a CNC status online. For more information, any taxpayer can visit the IRS CNC resource page.
Step 6: Talk to a Wage Garnishment Expert
Sometimes, taxpayers should simply talk to an expert, especially on complex issues that can affect a taxpayer’s life.
Wage garnishment is complex, especially for taxes that are old. Wage garnishment experts can provide a more personalized plan for taxpayers.
Of course, a taxpayer can also call the IRS helpline at 800-829-1040. However, taxpayers must take note that the helpline takes thousands of calls a day, so calling earlier in the day is a good idea.
Wage garnishment is not a death penalty for a taxpayer’s financial life. There are many ways to minimize the negative effects.
From an OIC to talking to a wage garnishment expert, taxpayers can find creative ways of maneuvering around wage garnishment. As long as taxpayers educate themselves about the tax process, then this specific issue is easier to deal with.
Have you experienced having your wages garnished by the IRS? Have you heard of other methods but are uncertain will work? Let us discuss in the comments section below.