One of the most uncomfortable and serious consequences of having a conflict with the IRS is wage garnishment. You may be wondering if the IRS can come after your wages if you owe back taxes. Unfortunately, the answer is yes; the IRS can and will collect money from every paycheck until your debt is satisfied in full. You should know that your employer will have no choice other than to fully comply with the demands of the IRS if a garnishment is activated. This can create a very embarrassing, high-stakes situation if you rely on your full wages to cover living expenses. Keep reading to discover what to know about wage garnishment if you’re potentially facing this very serious consequence.
What Does Wage Garnishment Mean?
A garnishment is a legal standing order that instructs an employer to withhold earnings. A court order is usually required for wage garnishment in the case of loan debt or overdue child support. However, a court order is not required if the IRS wants a piece of your income. All the IRS has to do is send you a Notice of Demand for Payment as well as a Final Notice to activate a garnishment. You will have 30 days to pay your balance in full after you receive a Final Notice before garnishment becomes effective.
What Are the Types of Wage Garnishment and How Do They Work?
The IRS has a lot of power when coming after the money you earn. In fact, it can take much more via a wage garnishment than a regular creditor. A wage garnishment doesn’t just apply to hourly wages or salary totals that are earned; the IRS can and will come after any bonuses or commissions you earn during the period of garnishment.
How Much of Your Wages Can Be Garnished?
The IRS is legally allowed to take as much of your paycheck as it deems necessary to satisfy your debt. You may think you know how the garnishment process works if you’ve ever been targeted by a creditor before, but an IRS garnishment is a different animal entirely. The law puts limits on just how much a regular creditor can garnish from your wages – but the standard limits of the law do not apply in the case of an IRS garnishment.
The good news is that the IRS doesn’t have permission to take your entire paycheck. The tax code requires the IRS to use a specific formula when calculating how much to take each pay period. You must be left with an amount of income that is deemed adequate for taking care of reasonable living expenses. However, the fact that the IRS can’t take everything doesn’t mean that it can’t take a lot of your earnings. It is actually possible for the IRS to take what amounts to 70 percent of your income through wage garnishment.
What Are Your Options When You Have a Wage Garnishment?
Most people aren’t in a position to hand over up to 70 percent of each paycheck to the IRS, and a setup like this could make it impossible for you to cover basic living expenses for yourself or your family.
A wage garnishment is not something that you can ignore in the hopes that the IRS will forget about you. The reality is that your employer will be instructed to begin withholding some or most of your pay if you don’t act within that 30-day window following notice from the IRS.
It’s important to know that you do have options if wage garnishment from the IRS is looming. The goal is always to get back in good standing with the IRS. This can be done by paying your full balance of owed tax or entering into some kind of IRS-approved resolution plan.
It is important to really consider whether you have the funds available to pay what you owe in full. Doing this could put a stop to the problem. Of course, it helps to seek professional assistance for tax resolution even if you do have the ability to pay your tax balance in full. Failing to handle every detail perfectly when paying late taxes could cause the problem to continue due to miscommunication with the IRS.
What if you cannot reasonably pay back what you owe to the IRS? That 30-day response window is still going to be very important even if you don’t intend to pay your balance in full to stop an IRS garnishment. Let’s take a look at the options that are on the table for stopping a garnishment.
File an Appeal
Do you disagree with the IRS’s judgment? You may want to consider filing an appeal if you do not believe you owe what the IRS claims you owe. It will be necessary to go through the process of requesting a Collections Due Process (CDP) hearing if you want to pursue this route.
Negotiate for an Installment Agreement (IA)
You may be able to stop the IRS from contacting your employer if you can get approved for an installment agreement in time. An IRS installment agreement works similarly to any other type of payment plan you might enter. You will be able to pay off your debt in chunks over a specified period of time if you successfully apply for an IRS installment agreement.
What Happens if Wage Garnishment Is a Financial Burden?
Would having a percentage held back from your wages sink you? The IRS does provide an option if wage garnishment would prove to be a serious financial burden for you. You have the option to ask for something called an Offer in Compromise (OIC). This arrangement essentially allows you to settle your tax debt with the IRS for less than the full amount owed. Getting approved for this program isn’t easy. The IRS will take a look at your current financial situation in relation to what is owed to determine if you qualify. What the IRS is essentially trying to determine is whether garnishment would make it impossible for you to meet your basic needs.
What happens if settling your debt for less than you owe still won’t leave you with enough money to live? Some taxpayers successfully obtain something called Currently Non-Collectible (CNC) status. Eligibility is usually achieved once your gross monthly income is lower than the allowable expenses determined by national standards. Taxpayers who qualify are protected from the IRS’s efforts to activate garnishments, levies, and other high-pressure collection tactics.
Help Is Available
Receiving notice that you’re facing wage garnishment is an intimidating, stressful experience. The main thing to keep in mind is that acting as quickly as possible may help preserve as many options as possible. The Tax Group Center is here to help you take action to stop wage garnishment before you lose one more dollar than you need to when dealing with the IRS. Our team of tax professionals will take a look at your situation, layout all the options for you, and move forward with a solution. We may be able to stop a garnishment in its tracks. Reach out today to get help from a team that works tirelessly, cares about our clients, and faces the IRS so you don’t have to.