What Triggers an IRS Wage Levy?
The IRS issues a wage levy when an employed person owes back taxes and has failed to pay or make arrangements to resolve this tax debt. Employers receive Form 668-W(C) from the IRS when a wage levy is placed on an employee.
The employer is then instructed to withhold a certain amount from an employee’s checks until the tax debt is paid in full.
Is a Wage Levy the Same as a Wage Garnishment?
Yes. Sometimes government agencies like the IRS refer to taking money from a paycheck as a “wage levy” for repayment of back taxes. Creditors like credit card companies or banks, however, may refer to this same process as “wage garnishment.”
If your wages are levied by the IRS, some of the money from your paycheck will be garnished and sent to the IRS.
A wage levy does not stop until the full amount of the tax debt is paid or until the person being levied makes arrangements with the IRS to settle their tax debt, whether it is with monthly installments or a lump sum payment.
Can the IRS Initiate a Wage Levy Without Notice?
No. Before taking money from your wages, the IRS will mail a Notice of Intent to Levy to your last known mailing address. At the same time, the IRS will send your employer Pub 1494. IRS 1494 explains how an employer can determine your wage levy exemptions.
They can then exclude this amount from what they send to the IRS from your paychecks.
How Much Money Can the IRS Levy from Your Paycheck?
The IRS will levy what is left of your paycheck amount after wage exemptions.
Factors considered when an employer determines wage exemptions and how much to garnish from your paycheck for an IRS wage levy include:
- Filing status
- Number of dependents claimed
- Pay frequency (weekly, biweekly, monthly, etc.)
- Whether child support is withheld
IRS Publication 1494 includes tables that show exactly how much of an employee’s paycheck is exempt from a wage levy based on the factors listed above.
Note that bonuses are not exempt from a wage levy. Two sources of income that are exempt from an IRS wage levy, however, are workers’ compensation and unemployment benefits.
Can You Get Money Back That the IRS Takes from Your Paycheck If Your Wages are Levied?
In most cases, no. Since a wage levy pays your IRS tax debt, you are not likely to get this money back. If you can prove that a wage levy is causing an economic hardship, the IRS may release it and not take additional money from future paychecks. However, this will not mean you do not continue owing back taxes.
If the IRS rejects your economic hardship claim, you can appeal either before or after the IRS levies your wages. If you win a wage levy appeal, you may file a claim on wages already withheld to have those wages returned to you.
How Can You Prevent an IRS Wage Levy?
Entering into a payment agreement to settle taxes owed to the IRS or paying a tax debt in full will prevent a wage levy. The terms of a standard IRS installment agreement do not permit the levy to continue.
Filing an appeal due to economic hardship is another way you may be able to stop a wage levy.
How Do You Stop a Wage Levy When You Can’t Pay the IRS?
Ignoring IRS collection notices is the worst thing you can do if you owe back taxes and are at risk of a wage levy.
Some resolution options:
IRS Installment Agreement: These payment plans let you make affordable monthly payments over time based on your current finances, including income, assets, and expenses. Depending on whether your payment plan is short-term or long-term, you will have between 180 days and 72 months to pay your tax debt in full.
Offer in Compromise (OIC): When you are unable to pay in full or monthly installments, the IRS may accept an “offer” amount that is less than your tax debt amount. When you can show the IRS that the sum of your income and assets is not enough to cover your expenses plus tax debt payments, they will be more inclined to accept an OIC.
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