Are you aware of how the IRS might collect the money you owe them through wage garnishment?

If you find yourself in debt to the IRS, it’s crucial to understand both how wage garnishment functions and the steps you can take to prevent or stop it. In 2022, the IRS reported that people in the U.S. owed more than $120 billion in unpaid taxes, fines, and interest. That’s a lot of debt, and it shows wage garnishment is a widespread issue. Stopping an IRS wage garnishment isn’t always straightforward unless you can pay your tax debt in full. The best approach is usually to arrange a payment plan with the IRS before they start garnishing your wages. But if garnishment has already begun, don’t worry—there are steps you can take to stop it.

What is a wage garnishment or wage levy?

A wage levy, often referred to as wage garnishment, is when the IRS contacts your employer to take a portion of your salary before you receive it, directing it toward outstanding tax debts. This process continues until the debt is paid in full, you make alternative arrangements, or the levy is lifted.

How do you know if the IRS is going to garnish your wages?

• Initial Notices:
  • The IRS won’t surprise you with wage garnishment. They’ll send a “Final Notice of Intent to Levy and Notice of Your Rights to a Hearing” at least 30 days before starting.
  • This notice can be delivered to you via registered mail to your last known address, or left at your workplace.
• Alert on Third-Party Contact:
  • You’ll receive a “Third Party Contact Notice” informing you that the IRS plans to speak with someone else about your case, typically your employer.
• Employer Notification:
  • Your employer gets a “Notice of Levy on Wages,” which means they will soon start deducting a portion of your wages for the IRS.
  • This usually begins in the next pay cycle.
• Form 668-W:
  • The IRS sends your employer Form 668-W, a “Notice of Levy on Wages, Salary, and Other Income,” instructing them to garnish your earnings.
  • Employers must follow these instructions and may need to report your health insurance details to the IRS.
• Employer Compliance:
  • Employers are legally obligated to comply with the IRS levy.
  • Failure to do so can result in penalties against them.

How Much Can the IRS Garnish from Your Paychecks?

• Exempt Amount Basics:
  • A part of your wages is protected from IRS garnishment, known as the exempt amount.
  • This amount is calculated using the standard deduction and factors in your dependents for the year the levy is issued.
• Determining the Exempt Amount:
  • The IRS sends your employer Publication 1494 PDF. This document will guide you in calculating the exempt portion of your wages.
  • You’ll receive a Statement of Dependents and Filing Status to fill out and return within three days. This information helps determine your exempt amount.
• Consequences of Not Responding:
  • If you don’t return the form within three days, the IRS will assume you’re married and filing separately with no dependents, which usually results in a lower exempt amount.
• Impact of Additional Income:
  • If you have income from other sources, the IRS might apply your exemptions to this additional income and could levy 100% of the wages from one of your jobs.

To avoid this problem and find a way out of such a predicament, it’s crucial to understand the avenues available for stopping IRS wage garnishment.

How Can I Stop a Wage Garnishment Immediately?

There are multiple ways you can leverage to stop the IRS from garnishing your wages. Let’s have a look.

Pay Off Your Tax Debt in Full

• Immediate Payment: The quickest method to stop wage garnishment is by paying the full amount you owe to the IRS. Once your tax debt is settled, there’s no longer a need for the IRS to garnish your wages.
• Let Garnishment Continue: Alternatively, you can allow the IRS to continue garnishing your wages until your debt is fully paid. Be mindful that interest and penalties accumulate over time, making early full payment a cost-effective choice.

Set Up an IRS Payment Plan

If you’re unable to pay your tax bill in one lump sum, reaching out to the IRS to arrange a payment plan is a viable option.

• Plan Types: Depending on your debt amount, you can choose either a short-term or a long-term payment plan, with a nominal setup fee. These plans can extend up to six years, breaking down your tax debt into manageable monthly payments.
• Maintain Payments: Keeping up with your installment payments gives you control over your finances, preventing wage garnishment.

Negotiate an Offer in Compromise

• Settle for Less: You can agree with the IRS to pay a part of what you owe as a full settlement. This means that if you can’t afford the full amount, you might not have to pay it all.
• Application Process: For this, you’ll need to fill out and submit IRS Form 656, “Offer in Compromise,” and Form 433-A (OIC), “Collection Information Statement for Wage Earners and Self-Employed Individuals,” along with the application fee and initial payment.
• Approval Considerations: Be aware that not all applications are accepted. You must convincingly demonstrate that paying the full amount would cause you financial hardship.

Declare Hardship

• Financial Strain: If wage garnishment significantly affects your financial well-being, you can request the IRS to halt it by declaring financial hardship.
• Documentation Required: Proving hardship involves showing that you can’t meet basic living expenses, necessitating the submission of financial records and details to the IRS.
• Temporary Relief: While this stops wage garnishment, it doesn’t absolve you of your tax debt. You’ll need to negotiate with the IRS for a payment arrangement.

Declare Bankruptcy

• Last Resort: Bankruptcy can restructure or eliminate your tax debt, but it has long-term consequences for your credit history.
• IRS Notification: Informing the IRS about your bankruptcy filing is essential for the discharge process.
• Compliance: Ensure you file all required tax returns and remain current with your taxes during bankruptcy to qualify for debt discharge.

Prove That the IRS Didn’t Follow the Correct Protocol

• Challenge the Process: If you believe the IRS did not adhere to legal procedures in initiating wage garnishment, you might have grounds to contest it.
• Seek expert help: Tax consulting from a tax professional or a wage garnishment attorney is very crucial in such cases, as they are familiar with the IRS’s guidelines and can identify any deviations from standard protocol.
• Documentation and Evidence: Your tax professional can help gather the necessary evidence to support your claim, potentially stopping the garnishment.

Don’t Quit Your Job, Even If You’re Tempted To

• Short-Term Solution: Quitting your job might seem like a way to stop wage garnishment, as the IRS can’t garnish income you’re not earning. However, this approach is not advisable.
• Long-Term Consequences: If you stop earning, the IRS may seek other means to recover the tax debt, such as seizing assets or funds from your bank account, creating further financial difficulties.
• Consider Alternatives: Before making any drastic decisions, explore all other available options for addressing your tax debt, like offers in compromise or installment agreements, as discussed above.

End Note! While some might see wage garnishment as an unavoidable outcome and choose not to fight it, exploring the available options to stop the IRS can be a worthwhile effort. For those who struggle with managing payments or keeping track of finances, considering the seven strategies to halt IRS wage garnishment is a smart move. If you’re currently dealing with wage garnishment and are uncertain about the best approach, support is readily available from Keith Jones, CPA. Along with it, Keith Jones also offers a range of services beyond addressing wage garnishment, including offers in compromise, and IRS representation that is different than optima tax relief, in Florida, and beyond to tackle all your tax concerns.