IRS Wage Garnishments and Levies
Let’s say you have received notice that the IRS is going to apply a wage garnishment to your paycheck. What exactly does that mean? It means that the IRS or state can notify your employer that you have a back tax liability and the government is ordering the employer to pay bypass you and send your pay to the IRS or state, depending upon the type of tax. In this case your employer is required by law to to send a substantial portion of each of your paychecks directly to the IRS to offset the liability.
Different taxing agencies call this process different terms: a wage garnishment, a wage levy, or a wage seizure. The end result is that your wages will be sent to the IRS or state for each pay period until:
- You make other arrangements to pay your overdue taxes,
- The amount of overdue taxes you owe is paid, or
- The levy is released
Part of your wages may be exempt from the levy and the exempt amount will be paid to you. The exempt amount is based on the standard deduction and the number of personal exemptions you are allowed. The IRS mails Publication 1494 with the levy which explains to your employer how to determine the amount exempt from levy. Your employer will provide you with a Statement of Exemptions and Filing Status to complete and return within three days. If you do not return the statement in three days, your exempt amount is figured as if you are married filing separately with one exemption. If you have other income sources, the IRS may allocate the exemptions to the other income source and levy on 100% of the income from a particular employer.
What if I’m scheduled to receive a bonus separately from my regular paycheck?
The IRS would take the entire bonus since the exempt amount is based on the time-period that your wages and bonus are paid. For wage levy purposes, the term salary or wages includes compensation for services paid in the form of fees, commissions, bonuses and similar items.
What if pay child support directly and not through my employer?
You must tell the IRS. The IRS will release from levy the amount you need to pay court ordered child support that the court ordered before the levy was received by your employer. If support is allowed, the same child cannot be claimed as an exemption for figuring the exempt amount. The dollar amount sent to the IRS for your wage garnishment depends on your filing status, the number of exemptions you claim and how often you get paid.
How do I stop a Wage Garnishment?
If you have been notified by the state or the IRS that you have a balance past due and that a wage garnishment or bank levy is possible, you must act immediately. If you cannot afford to pay your taxes at this time or have not made arrangements for repayment, speaking to a licensed tax professional about your situation is crucial. A licensed professional will be able to determine if the amounts claimed owed are correct and if the proper procedures have been followed by the government.
A trained tax relief professional can usually stop a wage garnishment. If you have already experienced a garnishment, it may be halted. We have seen some cases where a good tax relief professional has even got some or all of the garnished money returned to the taxpayer. But it is better to be proactive about avoiding a garnishment than hoping to get money returned.