One in 14 Americans is currently having their wages garnished. With over 328 million Americans, that’s no small number. There are many reasons for wage garnishment, but one of the major reasons is an IRS wage levy.
If you’re facing an IRS wage levy, you’re likely more than a little scared and baffled about how to handle it. Don’t panic, we’re here to help. Read on to learn all about IRS wage garnishment and how you can stop it.
How Does IRS Wage Garnishment Work?
IRS wage garnishment is a fairly lengthy process from start to finish. It begins in April when taxes are due. Assuming you’ve filed your taxes, you have until April 15 to pay the amount due.
If you fail to pay your taxes, then the IRS will take the necessary steps to force you to pay. First, the IRS will send you a letter that details exactly what you owe them in terms of taxes, penalties, and interest. The letter will specify the time period in which you have to pay what you owe.
If you do not pay by the due date in the first letter, then the IRS will send out a second letter called a “Final Notice of Intent to Levy.” After you receive that letter, you will have 30 days to pay what you or the IRS can begin garnishing your income.
Ordinary creditors are only permitted to take up to 25% of your income when they garnish your wages. This is not the case with the IRS. In fact, the IRS can take well over 70 percent of what you bring home each month.
How does the IRS calculate how much of your income to garnish? The IRS has a table based upon the number of exemptions you claimed on your W2, so if you claimed zero or one, they’d calculate the average living expenses for one person. The IRS can garnish anything above that amount, even if your actual living expenses exceed their calculations.
Stop the Garnishment Before It Starts
The best way to get stop IRS wage garnishment is to stop it before it starts. Here are a couple options for you if you’ve received the Final Notice of Intent to Levy.
Set Up a Payment Plan
You can stop a wage garnishment if you enter into an installment agreement, or payment plan, of which the IRS approves. This would allow you to pay off your debt in monthly payments that are likely much more affordable than what the IRS would garnish.
This is the best option if you want to avoid garnishment, but want to keep your assets.
Negotiate a Settlement
Believe it or not, the IRS does take settlements. This is termed an offer in compromise. There are specific financial requirements for the IRS to accept an offer in compromise, and they’re pretty strict.
You generally have to offer up the entirety of your net worth (the value of everything you own minus your debt).
Many experts state that an offer in compromise should be an absolute last resort if wage garnishment is being threatened. That’s because it works a lot like chapter 7 bankruptcy.
In chapter 7 bankruptcy, you have to liquidate your assets to cover a portion of your debts. Any debt in excess of your assets is forgiven. The same is true for an offer in compromise — you would have to liquidate your assets and use that money to pay as much of your tax debt as possible — the rest is forgiven.
If you want to keep your assets, this is probably not the right option for you.
Hire an Attorney or Tax Professional
If your wages are already being garnished, or if you want to ensure the effectiveness of your negotiations with the IRS, then you should hire an attorney or tax professionals. Attorneys and tax professionals have years of experience and expertise in dealing with the IRS and the latest tax laws, and they know exactly what moves to make to reduce your tax liability.
Attorneys and tax professionals can tell you more about your rights with the IRS and make sure those rights are enforced and protected. Of course, these services come with a price tag, but you’ll often end up paying less than what you would have if you had paid the IRS in full with penalties and interest.
Prevent Future Garnishments
The best way to avoid an IRS wage levy to make sure that you are always in good standing with the IRS.
First, get in the habit of filing your taxes each year, if you aren’t already. The IRS may even surprise you and issue a refund! Filing each year ensures that the IRS isn’t going to come knocking on your door.
But what if you owe money each year? You have some options. The first thing you can do is to change what you withhold each paycheck.
If you aren’t sure about this, you can always check out the IRS Withholding Calculator to determine how much you should set aside each month to prevent you from owing money to the IRS.
If you can’t avoid owing money to the IRS each year, don’t ignore it and think it’ll go away. Unlike other creditors, the IRS isn’t going to forgive your debt. As soon as you know you owe money to the IRS, contact them to set up a payment plan.
This way your debt will never get to the point of wage garnishment.
As with all debts, the more proactive you are, the less painful the outcome.
Ready to Get Back on Track with the IRS?
The good news about an IRS wage garnishment is that there are many steps you can take to stop it before it ever happens. Now that you’re equipped with all the information you need to resolve your IRS tax issues, you have no reason to be scared of the IRS. You also know what to do in the future to prevent the IRS from even thinking about garnishing your wages.
Want more information about how you can boost your financial wellness? You’re in luck! Check out the rest of our website for information about everything from personal finance to working from home.