The IRS Wage Garnishment
When a taxpayer owes back taxes to the IRS, and makes no effort to repay them, the IRS forcibly collects the debt by using collection actions such as a tax levy. Under a tax levy, the IRS looks for the most convenient method to fulfill the tax debt; it can seize and sell property that you own, like your car or house, or it can levy property that is yours but held by someone else, like your wages, bank accounts, retirement accounts, etc. A wage levy is frequently called wage garnishment.
What Leads to the Garnishment of Wages
When a taxpayer owes taxes, the IRS sends the taxpayer notices that contain information about the tax debt amount to be paid, the reason for the debt, and how to pay it. If the IRS does not receive a response or if they believe that not enough effort is being made to resolve the case, they proceed to the placement of a federal tax lien or a tax levy.
The IRS can take a partial or even full amount of a taxpayer’s wages and salary to satisfy the debt. They may begin a wage garnishment at anytime during the statute of limitations, the ten years the IRS has to collect the tax debt.
Final IRS Notice before Placement of Levy
The final IRS notice sent regarding the payment of tax debt before they resort to wage garnishment is CP 90 – Final Notice of Intent to Levy and Notice of Your Right to a Hearing. You need to respond to this notice within 30 days of the date of the notice. After the 30-day period if the case is not proceeding towards a resolution, they may begin wage garnishment, especially if the person under debt is consistently receiving wages from an employer.
The IRS does not consider any legitimate reasons for the lack of response. If they have your old address in their records and you are unaware of the notices sent, the IRS will hold you responsible for not informing them about the change in address.
What Can be Garnished and What Cannot
IRS has the legal right to levy, or garnish, a taxpayer’s wages and salaries. Wages and salaries are payments received for personal services in a work relationship. It is any fixed and determinable income received by the taxpayer.
The IRS can levy:
- Most Social Security benefits, including Disability
- Retirement funds
- Most Pensions
- Mutual Funds
For levying Social Security benefits, either the automated Federal Payment Levy Program (FPLP) or by a manual (non-FPLP) levy program is used. There is no restriction on how much of a taxpayer’s Social Security benefits the IRS can collect using non-FPLP, but it is required to leave the taxpayer with enough to meet basic living expenses. Under the FPLP, the IRS can only levy 15% of the Social Security benefits each month.
Exemptions: Certain income cannot be levied, including:
- Supplemental Security Income
- Worker’s compensation benefits
- Railroad Retirement Act and Congressional Medal of Honor benefits
- Child support payments
The income the IRS chooses to levy is determined without any communication with the taxpayer.
Stopping a Wage Garnishment
Wage garnishment is released after a taxpayer has qualified for an IRS tax debt payment plan and has begun to make payments to resolve the case. If diligent efforts are made to resolve the case, a tax professional can negotiate with the IRS to stop the wage garnishment and allow the taxpayer to resolve the case using a payment plan. A tax professional is also able to stop a garnishment if they can show that it is causing the taxpayer financial hardship.
The IRS has many tax debt payment plans that allow payments to be made in installments and reduction in tax debt. In cases where taxpayers cannot pay any amount of tax debt, the IRS may place the case under Currently Not Collectible. The IRS has ten years to collect the debt. If a taxpayer is unable to pay any amount of tax debt due to financial limitation during these ten years, the entire tax debt amount is nullified and no further collection efforts are made.
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