One of the types of levies that the IRS will employ is wage garnishment. By law, the IRS has the right to seize your property if you don’t pay your taxes, and that property includes your paycheck. Even the IRS, however, must follow certain guidelines before it starts to tap into your salary.
IRS Collection Methods
If you have not paid all or a portion of your taxes, the IRS will send you a “Demand for Payment” notice, a type of invoice which gives you the amount to pay. If the Demand for Payment goes unpaid, you will receive a “Final Notice of Intent to Levy” as well as a “Notice of Your Right to a Hearing.” The IRS is absolutely serious at this point that you are going to pay your taxes, one way or another. You will see these notices at least 30 days prior to when the IRS can begin to garnish your paycheck.
Ideally, if you cannot pay the amount due, you should have already been in touch with the IRS to alert them to the fact that you could not pay your taxes and needed to enroll in one of their payment plans. If you have failed to do this, your wages will be garnished.
IRS Unlike Other Debt Collectors
The IRS is not like other creditors. It is not bound by the debtor laws of the federal and state governments, and because of that, the IRS wage garnishments can be quite brutal. The IRS is only limited by US Tax Code to what they must leave for you after they garnish, or in other words, they must leave you enough money to pay for your basic living expenses. This amount is determined by how many dependents you claim. You could end up with virtually nothing to bring home after they take their piece of the paycheck pie. The IRS portion could be as high as 66% of your take-home pay, but this would also depend upon how much in taxes you owe the government.
Stopping Wage Garnishment?
Sadly, once garnishments start, there are very few reasons that would make the IRS cease. These reasons would include the IRS making a mistake in how they handled your case (they did not give you the required 30 days to respond to their notices or the time period when the taxes could be collected has expired), you declare bankruptcy, or the IRS is considering an Offer in Compromise or a payment plan from you.
So, what should you do if you owe taxes and cannot pay? If this is your situation, act immediately to try to remedy the situation before the IRS gets active. Consider these possible solutions:
1. IRS Installment Plans: These plans tend to be quite flexible, and the IRS looks very favorably upon you when you use these. You are attempting to pay off your tax bill, and they like that. If you go into a payment plan, the IRS will probably contact you less as long as you are current in making your payments. Interest tends to be high and this could cause you to take longer to pay off the bill.
2. Offer in Compromise: An Offer in Compromise will not solve every delinquent tax issue, but it is a good tool for the right scenarios. This method could possibly reduce your tax bill. However, you must remain current on your taxes for at least a five year period, for non-compliance will not be tolerated. This solution, depending upon the case could take several years to be resolved.
3. Tax Returns: If you have not been filing your tax returns or if your tax returns are incorrect, you could file amended (or new) tax returns to try to correct the errors. Although you should always file your tax returns, doing so might not correct your current tax problems. It all depends on the circumstances.
4. Bankruptcy: By filing for bankruptcy when you get a big tax bill, you still won’t discharge all of the taxes due to the government. Resolution can depend upon when the tax returns were filed.
5. Hardship: This is only a temporary solution for an on-going problem. Eventually, you will have to pay the taxes.
There is also another solution for special cases: Innocent Spouse Relief. In cases where one spouse did not know that the other spouse was underreporting income and taxes, there is the possibility that they could be resolved of any responsibility. Great detail is required to prove this, but it is a solution for such an unfair problem.
Wage garnishments, thankfully, tend to be a last resort by the IRS to try to collect back taxes. It usually is utilized if you have not answered their correspondence or tried in any way to get your taxes paid properly. As always, first course of action is to file returns and pay your taxes. If you have failed to do this and receive a notice from the IRS, act upon that notice immediately. If you are in over-your-head, contact Jeff Fouts, Tax Attorney, to help you find a solution for your tax difficulties. With his experience and expertise, he can work with you and the IRS to resolve your issues.