Can the IRS Garnish Your Wages?

How does IRS wage garnishment work?

A wage garnishment occurs when the IRS orders your employer to divert a portion of your paycheck directly to the IRS instead of to you, as a way of collecting money you owe. It’s a last-ditch effort to collect money until what you owe is paid in full.

However, though the IRS has the power to collect on that money, it must follow proper protocols before doing so:

• Initial notice: First, you’ll receive an initial balance due notice from the IRS, which clearly states how much you owe and why.
• Reminders: It will follow up with several additional reminder notices.
• Final notice: If you fail to acknowledge its warning notices, the IRS will then send a Final Notice of Intent to Levy, which allows you 30 days to resolve the balance, pay it off or file a CDP Appeals Hearing Request.

If you don’t take action within 30 days of the final notice, the IRS can garnish your wages without further notice.

How much can the IRS garnish from your wages?

One of the most enduring misconceptions about garnishing wages is that the IRS takes all of your money. While this is untrue, it can take a considerable amount from your wages, according to Stephen A. Weisberg, principal attorney and founder at The W Tax Group.

“The IRS can garnish a large portion of your paycheck,” Weisberg said. “There is no cap on the percentage of income that the IRS can take, unlike for private creditors.”

The exact amount the IRS allows you to keep is based on your filing status, the frequency of your paycheck and the number of dependents. This calculation ensures you avoid hardship.

“Outside of that, everything else can be taken,” said Weisberg. “For many, an IRS wage garnishment takes a large percentage of their net pay, which comes as a big surprise.”

How does the IRS calculate exempt and non-exempt wages?

The IRS uses a standard exemption table (IRS Publication 1494) based on IRS regulations. The exemption table considers filing status, number of dependents and how often you get paid, but it doesn’t take living expenses into account.

“Household bills are completely irrelevant to the exemption calculation. That’s why the amount left is generally not enough to cover basic living needs,” Weisberg explained.

However, enlisting the assistance of tax relief companies can help resolve your tax debt, lower the amount you owe and prevent wage garnishment.

What types of income or assets can the IRS seize for repayment?

When it comes to wage garnishment, none of your assets are off the table. Aside from your paycheck, the IRS can levy assets from your bank accounts, Social Security benefits and even your retirement or disability income.

If you don’t have sufficient amounts in any of these categories, the IRS can even claim future tax refunds at either the federal or state level. Even physical assets like vehicles, homes and land can be included in an IRS wage garnishment in extreme cases.

How to stop IRS wage garnishment

The best way to stop wage garnishment is to proactively engage with the IRS about any money you owe it before it gets to the point of garnishment. The IRS offers a host of solutions when it comes to tax resolution, like the Fresh Start program and many others.

But if that’s not possible, or you’re already facing garnishment, you still have options. “The faster a taxpayer provides a reasonable alternative to the garnishment, the faster it will be released,” Weisberg said.

You can stop wage garnishment if you propose a credible resolution alternative, Weisberg advised. The following options can help stop a wage garnishment:

• Installment agreement: This agreement enacts a payment plan with the IRS to repay the amount you owe. It’s most successful when the IRS has faith that your plan is reasonable and that you’ll be able to adhere to it.
• Currently not collectible hardship status: This status allows you to temporarily delay making payments to the IRS. Penalties and interest continue to accrue during the delay, resulting in higher overall debt owed.
• Offer in compromise: This alternative allows you to settle your tax debt with the IRS for less than you owe, if you qualify.

» RELATED: Pros and cons of IRS payment plans

Federal guidelines for IRS garnishment

“The IRS is given collection powers based on federal law, and its collection powers are far more powerful than private creditors,” Weisberg said. Unlike private creditors, the IRS can collect without filing a lawsuit, obtaining a court judgment or complying with state garnishment limits.

But federal guidelines do exist to protect citizens as well. These guidelines state that the IRS must provide certain notices, allow the right to appeal and consider hardship before garnishment occurs.

However, if deadlines are missed, those protections are no longer available.

Note the following IRS notices you might receive if you have unpaid taxes or other money owed to the IRS:

• CP14: First attempt to notify you of money owed and IRS intent to collect on that debt
• CP501: IRS reminder of debt owed
• CP503: Escalated notice of unpaid debt and should be treated with urgency
• CP504: Notice that IRS can and will levy your state tax refund (if applicable) and will wage garnishes as a next step
• CP90: Notice that wage garnishment is imminent and that you have 30 days to appeal before the IRS seizes your wages or other assets

Appealing an IRS wage garnishment

If you’ve been notified that the IRS will garnish your wages, you can still appeal the decision by filing a request for appeal. You’ll have 30 days upon receipt of the final notice to do this.

Seek the support of a tax attorney or a CPA when filing an appeal with the IRS. They can help you craft a solid appeal that ends up in the right hands.

You’ll most likely be filing a Collection Appeals Program (CAP) request. The CAP program is a short-term process with quick resolution. You’ll state your case to your case manager, and a decision will be made. You won’t be able to dispute the decision made on a CAP case.

A Collection Due Process (CDP) appeal is a formal administrative appeal that gives a taxpayer the opportunity to contest enforced collections like a levy and present alternative resolution options like installment agreements or economic hardship.

Importantly, a CDP appeal suspends collections while the hearing is pending. Many times it’s the best way to stop a wage garnishment before it begins,” Weisberg said.

» MORE: IRS tax forgiveness: what to know