A wage garnishment is nothing more than a means to collect a debt owed. It usually requires a court order that is served upon an employer and requires the employer to deduct a portion of an employee’s compensation and pay that portion to a creditor. Once the IRS garnishment is in place, it stays in effect until released according to the court order or is terminated through legal action.
However, the IRS and student loan creditors can garnish your wage compensation without seeking a judgment and resulting court order, which makes those creditors much more likely to use a wage garnishment in the collection of amounts owed.
The fact that your salary has been garnished by the IRS shouldn’t come as a surprise. You have likely been notified by the IRS, via letter, several times, with detailed accounting of how much you owe in tax, penalties and interest. At least one of those notices contained information that said “Final Notice: Notice of Intent to Levy and Notice of Your Rights to a Hearing. Please Respond Immediately.” If you didn’t respond and are employed, a garnishment is probably coming your way.
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How Much of My Salary Can the IRS Take?
The answer to how much of your paycheck the IRS garnishment can take is a little complicated. The IRS can require your employer to hold out what is termed the non-exempt amount, which they determine using a complex formula based on things such as your tax filing status, the number of people that could qualify as dependents, the current standard deduction amount and information contained in your last tax return.
Rather than go through all the different components of the formulas used, the following examples should give you an idea of the exempt amount that the IRS cannot garnish.
Married Filing Jointly with Two Dependents - The IRS would exempt from garnishment $32,700 annually for 2019. That works out to $628.84 per week or $2,722.88 per month on average.
Head of Household with Two Dependents - The IRS would exempt from garnishment $26,650 annually. That works out to $512.50 per week or $2,219.13 per month on average.
Single Filers with No Dependents - The IRS would exempt from garnishment $12,200 annually. That works out to $234.62 per week or $1,015.90 per month on average.
The amounts shown in the examples are subject to annual inflation adjustments and will most likely change for years after 2020.
IRS wage garnishments are a continuous levy and will continue every pay period until the tax debt is satisfied, unless other arrangements are made to pay the overdue taxes or the levy is released. As a result, if a levy is causing financial hardship, deciding what to do should become a high priority.
How to deal with a limited income & back taxes owed
For those who are surviving on limited income, there are options available:
Installment Agreement (IA): This is one of the most common ways the IRS resolves a tax debt. An IA allows a taxpayer to make a specific monthly payment until the debt is paid in full.
If this is the first time you’ve had back taxes owed, the Fresh Start Initiative might be right for you.
Partial Pay Installment Agreement (PPIA): The IRS does this when a taxpayer does not have the ability to repay what is owed within the 10-year statute of limitations available to collect the tax debt. Instead, they create a payment agreement that allows the taxpayer to pay off part of the liability during that time. The IRS will periodically re-evaluate the taxpayer’s financial situation to determine if they still qualify for a PPIA. If the PPIA becomes too great of a financial burden, there are other solutions.
Currently Not Collectable (CNC): This provision is for taxpayers who are unable to pay their tax debt because of financial hardship. While there are people who try to avoid their responsibility, most people who end up in CNC Status want to pay their taxes but are unable to do so because of their financial situation. If granted, the IRS will review your financial situation periodically. If your income increases, the IRS may ask you to start paying on the tax debt. If your income remains the same, you will remain in CNC. Once your debt reaches the 10-year statute of limitations date, the IRS will cease their collections efforts.
Offer In Compromise (OIC): If the IRS determines a taxpayer does not have the ability to pay off their tax debt before the statute of limitations runs out based on current financial capability, they may qualify for an OIC. But an OIC is not automatic. The IRS takes time in reviewing OIC requests.
The IRS can levy as much as 15 percent of your Social Security or use other retirement plans, too. Plus, there is a major requirement when trying to use these options to time pay or eliminate a tax debt; you need be up to date on all filings and current on taxes.
What is the difference between a tax lien and a tax levy? We answer this and other common questions in our IRS Controversy series.
What You Can Do
To deal with an IRS garnishment, consider the following:
Hire Experienced Representation
When the IRS’s collection activities have reached the garnishment point, it’s advisable to hire tax professionals who have experience representing clients with levies and who have been successful in getting levies released.
We’ve got the experience to help you work through back taxes owed and tax debt relief.
Contact the IRS on Your Own
Some taxpayers have great success reaching out to the IRS and negotiating an installment agreement or other resolution on their own. Remember, a wage garnishment is not the IRS’ first course of action. By the time your wages are levied, they’ve spent months trying to reach you to make arrangements.
Therefore, you may not find them as eager or willing to work with you as they would have been six months or a year earlier. Plus, working with the IRS directly can also mean telephone calls where you sit on hold for long periods of time, waiting to get an IRS representative on the phone to discuss your problem. And, expect to be required to complete detailed financial disclosure information forms about income, expenses, assets and liabilities to allow the IRS to make decisions related to your case.
If you owe a relatively small amount of tax and the levy is not creating a financial hardship, you have the option to just ride it out until the tax debt is satisfied and the levy is released. However, if this is your choice of action, make sure you consider all the things a garnishment might influence or cause difficulties with in the future before taking this approach.
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