What is IRS Wage Garnishment? Why the IRS Places a Levy on Wages
What is Wage Garnishment?
IRS wage garnishment is a legal way for the IRS to collect your tax liability without you directly paying them. The IRS contacts your current employer and tells them that your wages are to be garnished. If your employer fails to take out a portion of your wages and send over to the IRS then your employer will be held liable for the amount that was not garnished. So once your employer receives this notice you can be assured that they will do as they are told. The IRS can garnish salaries, wages, bonuses, commissions and possibly even retirement or pension earnings. The IRS typically will garnish up to 25%+ of a taxpayers income once a garnishment is implemented. So if your current paycheck is $1,000 that then becomes $750. There are exceptions for high earners though. The IRS does not care if this leaves you without enough money to pay the rest of your bills. Typically they will seize as much money as they can and leave you with just the amount that is set forth by the tables of allowable expenses, which is likely a lot less than you typically spend. This levy will remain in place until the IRS has seized enough of your income to satisfy your tax liability plus interest and penalties or until you have come to some other sort of agreement with them.
A wage levy is the most common form of IRS levy for taxpayers that have salary jobs. If you are having your wages garnished by the IRS it should not be taken lightly. This is one of the harshest collection mechanisms used by the IRS. It is likely that the IRS will take more money through garnishing your wages than if you were to cooperate and setup an alternative form of settlement. It is best to talk with a tax professional if you receive a wage levy and they can give you all your options and come up with the best tax settlement for you and they can even limit the effect of the levy until the problem is resolved.
When the IRS Will Impose a Wage Levy and Garnish Wages
A tax levy is typically the next collection step following a tax lien. Sometimes the IRS can skip the tax lien and begin to levy depending upon how they assessed your situation and likelihood of collecting. Depending upon your work situation and financial situation the IRS will decide which levy is appropriate for you. The IRS can legally seize any form of personal property. This means they can take your wages, bank accounts, SSA benefits, travel advances, commissions, property, rights to property and anything else the IRS thinks they can use to cover your tax debt. If you are a salaried employee there is a good chance that they will implement a wage levy in which they will garnish your wages. In order for the IRS to begin the levy the following three requirements must be met:
- The IRS assessed a tax liability and sent you a notice to demand payment
- You neglected or refused to pay the tax amount that was assessed
- The IRS sent you a final notice of intent to levy and notice of your rights to a hearing at least 30 days prior to the levy
The IRS will send these notices to your last known address or they will deliver them by mail or in person to your home or to your place of work. Once you receive this final notice the IRS will begin to levy no sooner than 30 days after you received the notice. The IRS hopes that in these 30 days you will find another form of resolution to settle your outstanding tax liability.
One thing to remember is that the IRS does not like to impose wage levies. These levies are costly to the IRS but they find them extremely effective as a scare tactic in order to make taxpayers pay their taxes. If they give you a notice of levy, they will hold up their end of their threat unless you pay your taxes or come to some other form of tax settlement. If you are being threatened by a levy it is highly suggested that you act quickly and talk with a tax professional in order to stop or remove the tax levy.