If you have a tax debt, the IRS can take a portion of your paychecks to repay the overdue tax balance. This process is known as a wage levy/garnishment. Understanding the IRS wage levy rules can help you prepare for the garnishment and even challenge it successfully. Here’s what you need to know about IRS wage levies and garnishments.
What notices will I receive before the IRS takes my wages?
The IRS wage levy process to garnish wages isn’t sudden. They’ll first send a series of notices to your last known address asking you to pay your tax debt. If you ignore these IRS notices, the agency will eventually file a Federal Tax Lien and issue the wage levy to take money from your paycheck. The IRS wage levy notices include:
- Tax Balance Due Notices: CP14, CP501, CP503
- Notice of Intent to Levy: CP504
- Final Notice of Intent to Levy and Your Right to a Hearing: CDP LT11/Letter 1058
Once you receive the LT11/Letter 1058, you’re at the last step before the IRS will levy your paychecks. The Notice of Your Right to a Hearing allows you to ask for a special hearing referred to as a Collection Due Process (CDP) hearing. During this hearing, you can dispute the tax debt and penalties or request a payment agreement.
How Much Time Do I Have Before the IRS Issues a Wage Levy?
You have 30 days to request the CDP hearing from the date you receive the CDP notice. If you fail to contact the IRS within 15 days after the deadline, the agency will start garnishing wages from your paycheck.
In some cases, the IRS can circumvent the CDP notice and levy income immediately after the first Notice of Intent to Levy. This happens for certain federal contractor levies where the agency has a strong reason to believe there is a higher failed collection risk. If this happens, you have the option to petition a CDP hearing after the IRS has issued the levy.
How Much of My Paycheck Can the IRS Levy?
Once the IRS issues a levy, it will notify your employer via IRS Form 668-W, directing them to send part of your paycheck to the IRS. Your employer is required by law to comply with the IRS demands and start remitting a portion of your wages to the IRS.
The IRS determines the amount to exempt based on your filing status, number of dependents, and the pay period. The levy amount isn’t calculated as a percentage of your income or a maximum levy amount. The more money you make, however, the more the IRS will take. For example, in 2020, individuals with two dependents and earning $1,000 per week would get to keep $524.03. Those earning $2,000 per week had as much as $1,475.97 levied for tax debt repayments.
Apart from garnishing your wages, the IRS can also levy your accounts receivables, Social Security income, and bank accounts.
What Are My Options to Prevent or Stop an IRS Wage Garnishment?
Whether you have received your first or final IRS Notice of Intent to Levy, you have several options to stop the IRS from taking your income:
- Installment Agreement: Set up a favorable payment plan with the IRS to repay your overdue tax balance over time. You may need help from tax experts, like Wiztax, to help show you’re unable to repay the full tax debt in a single payment.
- Offer in Compromise: If you’re unable to pay your full tax debt, request an IRS Offer in Compromise to reduce your tax liability and settle your tax debt for less than the full amount.
- Financial Hardship Exemption: The IRS can forgive your tax debt if you demonstrate paying it will put you in dire financial hardship. One way to get a financial hardship exemption is by proving the wage garnishment will prevent you from meeting your family’s basic needs.
- Garnishment Appeal: Federal law allows you to dispute your tax debt through an appeal process. If you prefer this option, ensure you request a CDP appeal within 30 days after receiving the Final Notice of Intent to Levy.
- File Bankruptcy: Some of your tax debt can be discharged through bankruptcy. However, it is challenging to know the amount of your tax debt that is dischargeable. Even after filing bankruptcy, you still must pay the tax debt that can’t be discharged.
How Can Wiztax Help?
We help with these kinds of tax matters every day. Getting started is easy. Simply call us at 866-568-4593 or start here. In addition to being a BBB accredited business that’s been featured on CBS, Fox, NBC, and USA Today, it’s our 5-star Google Reviews and 100% customer satisfaction that mean the most to us. Our goal is to solve your tax issue.
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