Home / Back Taxes / Tax Resolution / How to Stop IRS Wage Garnishment | Wage Levies for Back Taxes

Do you know the methods the IRS could use to collect your owed money via wage garnishment?

To stop a wage garnishment for back taxes, you need a smart plan. This often means negotiating with the IRS and using certain legal options. Here’s a comprehensive overview of the steps and considerations to address this issue:
wage garnishment

Understand the IRS Wage Garnishment Process

A wage garnishment or wage levy happens when the IRS tells your employer to take a portion of your salary. This is also known as IRS wage garnishment.

This money goes toward any unpaid tax debts you owe.

This process continues until the debt is paid in full, you make alternative arrangements, or the levy is lifted.

  • What is Wage Garnishment? The IRS can take a part of a person’s wages to collect unpaid taxes. This is one of the IRS’s strongest collection actions. They tell the employer to withhold a part of the employee’s paycheck. This continues until the debt is paid off.
  • IRS Notice Requirements: Before garnishment begins, the IRS typically sends a series of notices, including:
    • CP14: Initial notice of balance due.
    • CP501, CP503, and CP504: Follow-up notices for unpaid taxes.
    • Letter 1058, also known as LT11, is the final notice before your wages are taken. This notice informs you of your right to a hearing. It provides the taxpayer 30 days to respond and request a hearing.

Immediate Steps to Stop Wage Garnishment

  • File for a Collection Due Process (CDP) Hearing: If you get a Final Notice of Intent to Levy, you have 30 days. You can request a CDP hearing by using Form 12153. This halts the garnishment process temporarily while the appeal is pending. During the hearing, you can present alternative solutions like installment agreements or an Offer in Compromise.
  • Apply for an Installment Agreement (IA): You can lift the garnishment by making a formal agreement with the IRS. The IRS generally prefers consistent, smaller payments over garnishing wages.
  • Submit an Offer in Compromise (OIC): This option is for taxpayers unable to pay the full amount of their tax debt. An OIC lets them pay less than what they owe. They must show that paying the full debt would cause financial hardship. However, the acceptance criteria are strict.
  • You can request Currently Not Collectible (CNC) status if paying your tax debt would cause you serious financial problems. This means the IRS will not require you to make payments for now. This stops all collection activities, including wage garnishments.

Other Alternatives to Consider

  • Partial Payment Installment Agreement (PPIA): This is for taxpayers who cannot pay their tax debt all at once. Instead, they can make smaller, manageable payments over time. While this does not necessarily reduce the amount owed, it can stop an IRS wage garnishment.
  • Seek Innocent Spouse Relief: If your tax debt comes from your spouse or ex-spouse, you might qualify for Innocent Spouse Relief. This could remove your responsibility for the debt and stop the garnishment.
  • File for Bankruptcy: Although this is a last-resort option, filing for Chapter 7 or Chapter 13 bankruptcy can place an automatic stay on IRS collections, including wage garnishments. However, not all tax debts are dischargeable in bankruptcy, and it is crucial to consult a bankruptcy attorney before taking this step.

4. Negotiate with the IRS Directly

  • If you have missed the deadline for requesting a CDP hearing, you can still negotiate directly with the IRS using the Collection Appeals Program (CAP). This is available before or after a levy is initiated, but it does not stop collections while the appeal is pending.
  • Request a Release of Wage Levy: A wage levy can be released if you can show that the levy is causing undue economic hardship or if you have made arrangements to pay the amount due. The IRS is required to release a levy under certain conditions as outlined in IRC §6343(a).

5. How Much of Your Wages Can the IRS Garnish?

  • The IRS follows federal wage garnishment rules, meaning they can take a significant portion of your disposable income (the amount remaining after legally required deductions). The amount exempt from garnishment depends on filing status, number of dependents, and the current standard deduction. The IRS will send Form 668-W to the employer, which outlines the garnishment process and exemptions.

6. Working with a Tax Professional

  • Hire a CPA or Enrolled Agent: An experienced tax professional can help navigate the complexities of IRS negotiations, prepare necessary forms, and potentially expedite the resolution process.
  • Avoid Scams: Be cautious of firms that promise to settle your debt for “pennies on the dollar” without thoroughly analyzing your financial situation. The IRS has strict requirements for debt relief options, and a reputable tax professional will provide realistic guidance.

7. Rebuild Financial Stability After Wage Garnishment

  • After successfully stopping the garnishment, it’s essential to maintain compliance with the IRS by:
    • Filing all past-due returns.
    • Staying current on estimated tax payments if you are self-employed.
    • Avoiding future tax debt to prevent further garnishments.

Summary

Stopping an IRS wage garnishment is possible through various strategies, such as requesting a CDP hearing, negotiating an installment agreement, or applying for hardship relief. Each approach requires timely action and proper documentation. While it is possible to address this issue independently, consulting with a tax professional can help ensure that you choose the best course of action based on your unique circumstances and increase the likelihood of a successful resolution.