Wage garnishments are one way that the IRS can use to force you to pay a delinquent tax debt. They can be up to 25% of your disposable income and will restrict how much you have to spend every month. Let’s look at what wage garnishments are and how to stop them.
A wage garnishment is a payment made out of your pay check by your employer direct to the IRS to cover a tax debt. You cannot stop your employer from paying it and they cannot refuse the IRS as they will be breaking the law.
Wage garnishments can be made for federal and state taxes. If you owe both then the federal tax takes priority out of the 25% of your disposable income + 100% of your bonuses.
There are exemptions – you may be in prison or have been in the last six months, or be in genuine financial hardship but these are generally only temporary.
The wage garnishment will only end when you have paid the debt or negotiated a different payment method with the IRS. We will look at your ways out of these payments later on in this article.
The first thing the IRS will send is a Notice and Final Demand for Payment of your taxes. They only have to send this to your last known address so moving house and not telling them is not an excuse to get out of the wage garnishment.
Either in person or by letter, the IRS Tax Attorney will then deliver a Final Notice at least 30 days before the garnishment is put onto your income at your employers. This can be sent to you or your place of business. Because it will be sent to your last known address the first thing you may know of the wage garnishment is the money coming off your income in a statement on your pay slip.
Your employer will receive a letter informing them that they must withhold a certain amount of your income and that must be paid directly to the IRS. They will have to give you a Statement of Dependents and Filing Status that you have three days to complete, which will help the IRS calculate how much to take from you.
The employer cannot refuse to do this or they will become personally liable for the tax debt in question.
They will then pay the required amount of money out of your income.
As with many punitive measures the IRS can force upon people who do not pay their taxes, the wage garnishment is usually stopped if the IRS and taxpayer can come to a negotiated settlement. In most cases you will end up paying the full amount as well as any penalties but you should be able to either go through a shorter period of increased discomfort or a longer period of less discomfort if you at least come to the table with them. Let’s look at your five options:
Do you have savings, shares or other financial instruments you can turn into cash? As soon as they receive the money the IRS will stop the wage garnishment. In many cases you will be avoiding the IRS because you haven’t that sort of money around. Can you borrow from friends or family? Can you take out a loan to repay the tax debt? Could you remortgage your come to raise the money? These are definitely the better options than the next ones as they are quick and relatively painless.
If you owe the IRS $10,000 or less you can repay the debt within three years, and if $50,000 or less you can repay it over five years. One thing to note is that negotiations can be long and complicated, and you will still be paying your wage garnishment for a number of months while the IRS makes their decision whether to agree. Your best bet is to contact Defense Tax to discuss your situation and to get a professional to help get the best possible deal.
This is a temporary measure that allows you to get back on your feet again. It has a high threshold and you will have to genuinely be in difficulty.
The IRS can take up to 25 weeks or longer to institute a wage levy and if you need more time to rectify your affairs then it may make sense to quit your job and get a new one while you organize a way to repay your tax debt. Though your employer may frown upon it is perfectly legal for them to fire you and then re-hire you at your request as that would also set the clock back to zero.
At Defense Tax we have published an article on the process of getting an Offer in Compromise – read it here. It can mean that you will pay 10% or less of your original tax bill, but does require a lot of paperwork. We strongly suggest you hire an expert to go about applying for an offer in compromise.
In order to get to any of these positions with the IRS you should have all your tax affairs in order. That means you should have filed all of your tax returns with them. In the case of IRS offer in compromise you will have to be prepared to file full statements of accounts for the time period that the IRS asks too.
The best thing you can do to stop a wage garnishment is to call Defense Tax today to discuss your problems. We can negotiate on your behalf and end it in a relatively short period of time through an offer in compromise, proof of financial hardship or installment agreement.