Have you heard about a wage garnishment, but you’re not exactly sure what it is? Here are some frequently asked questions to help you understand this legal process.
In this article:
- What Is an IRS Wage Garnishment?
- How Does an IRS Wage Garnishment Work?
- How Do You Calculate an IRS Wage Garnishment?
- Why Does a Wage Garnishment Happen?
- How Long Does an IRS Wage Garnishment Last?
- How Do IRS Garnished Wages Affect You?
- Does an IRS Garnishment Affect Your Credit Score?
- How Does a Wage Garnishment Affect Your Employment?
- How Do You Stop the IRS from Garnishing Your Wages?
- What Is the Role of CPAs and Other Tax Professionals in Helping with IRS Wage Garnishments?
Wage Garnishment | What You Should Know
What Is an IRS Wage Garnishment?
An IRS wage garnishment means the IRS has the authority to legally seize or garnish a taxpayer’s income to compensate for their taxes owed. IRS garnishment may apply to a taxpayer’s bonuses, commissions, salary, or hourly wages.
The difference between your creditors and the IRS garnishing your wage is that the IRS does not need the court’s judgment to proceed with the process. They can also garnish more of your income than a regular creditor.
How Does an IRS Wage Garnishment Work?
When the IRS garnishes your wages for your tax debt, they will first determine how much you owe in back taxes. They will then send you a written notice indicating the amount you owe, which includes interest, penalties, and taxes.
You can also see on the notice the due date on which you need to pay the balance in full.
In case you do not fully pay what you owe on the given date, you will receive another notice (Final Notice of Intent to Levy). If you still cannot pay the balance due 30 days after you receive the final notice, the IRS will proceed with the tax garnishment.
How Do You Calculate an IRS Wage Garnishment?
For creditors, the law puts certain limits on the amount that can be garnished from your income. For the IRS, the tax code only instructs the government to leave you with an amount of income for your basic needs after they apply a wage garnishment.
The tax code provides a table containing the number of exemptions you claim for tax reasons and the amount you need for your basic living necessities. The garnished amount can be 70% or more of your income.
Why Does a Wage Garnishment Happen?
Wage garnishment happens primarily because of unpaid liabilities. These liabilities may also differ, such as unpaid private creditors, student loans, federal, state, and local taxes.
For tax debts, it can be that you failed to file one or more tax returns, there is a tax audit, or you failed to pay past due taxes, penalties, and interest. The IRS will then review your financials and issue you with garnishment where they see fit.
How Long Does an IRS Wage Garnishment Last?
An IRS wage garnishment is generally applied until you fully pay your tax debt. The government can constantly withhold money from your paycheck until your balance is clear.
If you owe a huge balance, the garnishment may be active for years as you pay off your debt. If you have some concerns or disagreements with the stated amount from the IRS, you must file an appeal within 30 days following the date of the notice you received.
How Do IRS Garnished Wages Affect You?
Virtually, the IRS has unlimited access to your wages once they issue a wage garnishment. They will only leave you with enough money to cover your necessities.
There are certain expenses the IRS does not consider as necessities, such as the following:
- insurance or medical costs
- rent or mortgage
This means you may only be left with an amount that may not be enough to cover all your needs, resulting in significant financial difficulty.
Does an IRS Garnishment Affect Your Credit Score?
The good news about wage garnishments with the IRS is that it does not generally affect your credit score. The downside though is that the financial hardship you will face can significantly affect your credit score.
For example, if the IRS takes a huge percentage of your paycheck, you may have difficulties paying your bills on time. Mortgages, car payments, and other expenses may also be more difficult for you.
Many taxpayers may stop paying their credit card bills or postpone payments to a later date, leading to a decrease in their credit score.
How Does a Wage Garnishment Affect Your Employment?
One significant impact of garnishing your wages is it can jeopardize your job. Some employers may see your garnished wages as a “stain” that reflects on your character and your eligibility for a position in a company.
Aside from that, your garnishments can also put additional expenses and work on the part of the employer. An employer cannot fire you because of your garnishments on a single debt though, according to the Consumer Credit Protection Act.
The Act, however, does not protect workers who have garnishments on multiple debts.
How Do You Stop the IRS from Garnishing Your Wages?
There are several ways for you to stop tax wage garnishment. You only need to get back in good standing with the government.
Here are some helpful things you can do:
- Apply for an Installment Agreement
The IRS will cease garnishing your income if you apply for an installment plan and have it approved. Just make sure to pay your debt every month so you can clear your balance by the agreed date.
- Make an Offer in Compromise
Based on your financial status, you can settle your debt for less than the total amount you owe through an offer in compromise. Once you qualify for the program, your wage garnishment will cease while the IRS reviews your case.
- If You Are Unable to Pay Due to Financial Difficulties
If you can prove that you are unable to sustain your basic needs if the IRS applies wage garnishment on your income, the government may temporarily freeze the collections for several months, or even years depending on your case. They will then review your financials.
- Change Employers
IRS wage garnishments will not proceed if you change employers. The government should take some time tracking your new employer down and reissuing the garnishment.
This may be temporary but can provide you with a short relief.
What Is the Role of CPAs and Other Tax Professionals in Helping with IRS Wage Garnishments?
Hiring a CPA or a tax professional can significantly help you with wage garnishments, especially if you get overwhelmed and confused with the process. They can prepare and file your returns on your behalf before the garnishment takes place if you failed to file them initially.
These professionals can also aid in justifying any deductions, offsetting your mistaken deductions during audits. They can rework your returns to check other deductions you failed to take.
An IRS wage garnishment can significantly affect your income resulting in financial difficulties. To avoid dealing with this legal process, simply file your income tax and pay it on time.
If you have trouble paying your taxes, do not hesitate to contact the IRS for some payment options that can help you pay what you owe with a lesser burden.
What difficulties did you encounter in dealing with IRS wage garnishments? Share your experience in the comments section.