What Is IRS Wage Garnishment? Why the IRS Places a Levy On Wages
What Is IRS Wage Garnishment?
IRS Wage garnishment is when the IRS collects back taxes directly from your paycheck. The IRS contacts your employer and instructs them to take funds out of your paycheck. Next, your employer must send the money to the IRS. If your employer fails to send payment to the IRS, liabilities may pass to your employer. As a result, once your employer receives this notice, you can rest assured that they will do as requested.
How Much of Your Wages Can the IRS Garnish?
The IRS can garnish salaries, wages, bonuses, commissions, and possibly even retirement or pension earnings. The IRS doesn’t garnish a particular percentage of your wage income. Instead, the agency decides how much you need to live and takes the rest. The IRS utilizes a table to determine how much they cannot levy from your paycheck each pay period. The standard deduction and the number of dependents you have determine the amount of income exempt from IRS levy. Consequently, your filing status, the number of exemptions you take and your pay frequency help your employer calculate the amount of money to leave you with each pay period.
In most cases, this amount is probably less than you spend on a regular basis. As of 2018, if you are single with one exemption, the IRS leaves you only $230.77 a week or $1,000 per month. If you are married filing jointly with four dependents, you keep $780.78 per week or $3,383.32 per month. Any money you earn over these thresholds the IRS can take.
Here is a subset of the table the IRS provides your employer for 2018. The table below only expresses the amounts exempt from levy based on a single filing status:
|Amount Exempt from IRS Wage Levy for a Taxpayer With a Single Filing Status 2017|
|Number of Exemptions Claimed|
|Pay Frequency||0||1||2||3||4||5||More Than 5|
|Paid Daily||$46.15||$62.11||$78.07||$94.03||$109.99||$125.95||$46.15 plus $15.96 for each exemption|
|Paid Weekly||$230.77||$310.58||$390.39||$470.20||$550.01||$629.82||$230 plus $79.81 for each exemption|
|Paid Bi-Weekly||$461.54||$621.16||$780.78||$940.40||$1,100.02||$1,259.64||$461.54 plus $159.62 for each exemption|
|Paid Semi-Montly||$500.00||$672.92||$845.84||$1,018.76||$1,191.68||$1,367.60||$500 plus $172.92 for each exemption|
|Paid Monthly||$1,000||$1,345.83||$1,691.66||$2,037.49||$2,383.32||$2,729.15||$1,000 plus $345.83 for each exemption|
If you have two jobs and one covers your “living expenses,” the IRS may garnish 100% of your paycheck from the other job. Additionally, if your boss issues a bonus, the IRS may take all of that.
This levy stays until you pay off your tax debt or until you make other arrangements with the agency. Alternatively, the IRS will release a levy if the statute of limitations on collection arrives.
When Will the IRS Impose a Wage Levy and Garnish Wages?
A tax levy is typically the next collection step following a tax lien. However, sometimes the IRS skips the tax lien and begins to levy right away instead. A levy is when the IRS takes your assets to satisfy a tax debt.
The IRS can legally seize your wages, bank accounts, Social Security benefits, retirement accounts (rare), commissions, property, rights to property, and more.
If you are a salaried employee, the IRS will probably set up a wage levy and garnish your wages. For the IRS to levy a paycheck or other assets, the IRS must meet the following three requirements:
- The IRS assessed a tax liability and sent you a notice demanding payment
- You neglected or refused to pay the tax amount due.
- The IRS sent you a Final Notice of Intent to Levy and Notice of Your Right to a Hearing (must be sent to you 30 days before they a levy ensues)
The IRS must deliver these notices by hand or send them via registered mail to your last known address or place of employment. Once you receive the Final Notice of Intent to Levy and Notice of Your Right to a Hearing, the IRS can begin to levy after 30 days.
Exceptions to the IRS Levying Without Providing 30 Days Notice in Advance
The IRS doesn’t always have to provide you 30-days notice of your right to a hearing before levying your property. Here are some situations whereby they do not have to notify you in advance:
- Jeopardy Levy – If the IRS feels that they are in jeopardy of collecting the tax, they can levy your property without providing notice in advance.
- A Disqualified Employment Tax Levy – If you have previously requested a collection due process hearing for payroll or employment taxes for a specific tax period with the last two years, the IRS can levy for other tax periods without providing you notice in advance.
- Federal Contractor – If you are a federal contractor, then the IRS can seize property and provide you notice afterward.
- State Tax Refund Levy – The IRS can seize a state tax refund without offering you 30 days advance notice
The IRS does not like to impose wage levies. They are costly, and the IRS prefers to use them as a threat. However, if you don’t respond, the IRS will carry through on that threat. If you receive a final notice, request a free consultation to get help from a tax professional to understand all your options. A licensed professional can contact the IRS and apply for a payment plan, settlement, hardship status, just to name a few tax relief options.