If the IRS believes you owe back taxes, and they haven’t succeeded in getting you to pay the balance or agree to a payment plan, they have the option to garnish your wages. When this happens, the IRS takes money directly out of your paycheck before it even gets to you — a scary prospect, particularly if you are struggling to make ends meet as it is.
Because there are several misconceptions about IRS wage garnishment, here are a few things you should know if you owe the IRS money and fear they might come after your paycheck.
1. The IRS Knows How Much You Make and Where You Work
Even if you haven’t filed a tax return this year, the IRS receives the same W2 and 1099 tax forms from your employer or payer, so they know where you work and how much money you make. You can’t duck wage garnishment by failing to provide this information.
2. The IRS Sends Notices Before Garnishing Your Wages
If you owe taxes and worry you’ll one day open your paycheck to see that a huge chunk of it has been diverted to the IRS, rest a little easier. The IRS never garnishes wages without making attempts to first collect the money in other ways, followed by more than one notice that they plan to escalate to wage garnishment.
Typically, the final IRS notice you will receive before a wage garnishment goes into effect is either an LT11 Notice or an IRS Letter 1058. Once you receive this notice, you can appeal the IRS’s decision to garnish your wages by requesting a due process hearing within 30 days of receiving the letter.
3. Your Employer Notifies You Before Wage Garnishment Starts
In addition to receiving an IRS notice before your wages are garnished, you will also receive notification from your employer of what is about to happen. When the IRS officially initiates the garnishment — this happens after they send you an LT11 or 1058 letter and you’ve had ample time to respond to it — they will notify your employer and your employer will then also inform you of the wage garnishment and the date it starts.
4. The IRS Won’t Garnish 100% of Your Wages
The IRS can’t take your whole paycheck, but depending on how much you make, they can take a big portion. The amount of your paycheck that is safe from wage garnishment is based on your filing status and number of dependents and can be found on the IRS’s exemption table.
5. There’s More Than One Way to Stop IRS Wage Garnishment
The good news is that you have the power to stop IRS wage garnishment with the Fresh Start Program, and there are several ways to do it. Obviously, you can pay your tax balance in full, but if this is not financially feasible, you can also enter into an IRS payment play or installment agreement in which you agree to make affordable monthly payments toward your unpaid tax balance.
This is how most taxpayers stop wage garnishment. If the garnishment is causing an economic hardship, you can appeal to have it stopped for this reason as well by submitting an Offer in Compromise or requesting Currently Not Collectible status.
6. The IRS May Stop Wage Garnishment if You Request an Extension to Pay and Haven’t Done So Before
If you have never requested an extension to pay your taxes, you can do this one time to potentially stop wage garnishment. However, if you’ve filed for past extensions and failed to follow through, the IRS will likely decline your request.
7. For an Economic Hardship Release of Wage Garnishment, Submit an Offer in Compromise or Request Currently Not Collectible
If you are suffering an economic hardship, you can have your wage garnishment stopped with an Offer in Compromise or Currently Not Collectible status. If the IRS agrees to an Offer in Compromise, you can pay the IRS less than what you owe to resolve your back taxes. Currently Not Collectible status puts all IRS collection efforts, including wage garnishment, on hold until your financial situation improves.
8. You Must File Missing Tax Returns to Release Wage Garnishment
Generally, the IRS requires that you’re up to date with filing tax returns before they stop wage garnishment. In rare hardship cases the IRS might work with you on extending the time to file past returns when considering whether to release your wage garnishment.
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