Wages can be garnished, both by the IRS and by other creditors. However, wage garnishment is not so simple. It depends on factors and legal issues that must always be complied with.
On the other hand, the garnishee has rights that can use to appeal the money’s garnishment.
Why does an IRS wage garnishment occur?
Variable IRS levies will be motivated almost entirely by tax defaults of the person levied.
First, it is important to remember that wage garnishment can occur for different types of debt, not just tax debts. For example, a financial debt with a bank ending in a judicial claim can also perfectly conclude with wage garnishment.
In the case of IRS garnishments, they are part of a debt claim process. That is to say, there is no immediate garnishment figure which is generated if you do not pay your tax obligation at the moment. Initially, a process is initiated whose end is, precisely, the garnishment of your wages.
Generally, garnishing wages is the last option the tax institution will implement. It will even prefer to carry out other garnishments, such as blocking bank accounts.
How does the garnishment process work?
First of all, there must be a tax debt. That is, at the time of paying the taxes, if you do not assume the payment, this automatically generates a failure to comply with the obligations of the tax authorities.
Second, once it is aware that you have not paid the taxes, the IRS will send you a communication. This communication would be the first demand to pay the debt. Generally, it will grant you a period specified on a specific date within the letter.
The third is critical. That is the final notice of intent to levy letter. If you have not responded to the previous note, this would be the last communication before your wages are garnished. Upon receipt of this letter, you have 30 days to get current with the institution, or They will withhold your wages.
The letters indicate to the debtor the reasons for the claim, the amount, and, very importantly, a deadline for payment. As we mentioned in the previous paragraph, the payment deadline is usually 30 days after the official receipt of the letter. However, this does not mean you have to pay on the 30th day.
It is best not to wait until the last day to pay the debt to avoid problems with payment processing.
Do I have alternatives to foreclosure?
Yes, but there are not many. The first one is, in case of the seizure request or with the volume of the debt, to claim it. There is a legal period, the same of 30 days, through which you can initiate claim actions.
However, remember that this claim process will not exempt you from the execution announced in the letter. That is to say, even if the process continues, after 30 days, it is normal that they will garnish your salary. Subsequently, if your claim is successful and you win the case, the institution will proceed to return the withheld portion that is not justified.
Another alternative is to reach a debt deferral agreement. Beware, we tend to think that a debt deferral implies delaying the payment period: this is not the case except on rare occasions. In reality, a debt moratorium consists of dividing the debt into various installments and assuming the installments proposed by the organization.
Fractionation of debt is one of the IRS’s favorite options, much more so than the levy itself, which generates slow and cumbersome bureaucratic procedures. Therefore, the institution will generally be open to reaching a good agreement. Of course, they will make the proposals, and you must adapt to the one that best suits you.
The great advantage of a deferment of payments is that, as long as you make the agreed payments correctly, you will not suffer any seizure: that is to say, you will be able to pay effectively in installments.
Another option would be to declare bankruptcy. Filing for bankruptcy means an automatic stay of any collection action or wage garnishment by a creditor, including the IRS.
A common misconception is that one can use bankruptcy to discharge tax debt. That is not the case. You can only include tax debt in default when reorganizing your debts instead of paying them. That is when you combine your debts into one to assume all of them in a single payment.
On the other hand, only wage earners can assume tax debt in bankruptcy proceedings.
How much can the IRS garnish your wages?
That is a very important aspect. When any creditor garnishes our wages, the maximum limit that can be attached is 25%. However, this rule does not apply to the IRS.
Therefore, the agency is going to use a formula of its own in which it is going to determine the minimum money you need to live on. From that amount, remember, an IRS proprietary formula, they can levy all the rest of your wages.
Generally, they will use a standard deduction, and the amounts claimed on your taxes as a reference. However, they will not consider your actual expenses in the calculation. Nor will your wages take into account other possible wage garnishments.
Moreover, the IRS may garnish your total wages if you have a second job. Also, any bonuses you receive. Likewise, it can attach bank balances up to the full amount owed.
For years I have studied American finance regulations. All the information in this blog is sourced from official or contrasted sources from reliable sites.
Salesforce Certified SALES & SERVICE Cloud Consultant in February 2020, Salesforce Certified Administrator (ADM-201), and Master degree in “Business Analytics & Big Data Strategy” with more than 13 years of experience in IT consulting.