If you owe money to the IRS and have not agreed with them on a payment plan, they may decide to garnish your wages. When you owe back taxes or other payments to the IRS, they have the power to take that money directly from your income.
Wage garnishment may leave you wondering, “How much can the IRS take in wage garnishment in my case?” Keep reading to learn about garnishment and the answer to this common question from our experts at Levy & Associates Tax Consultants.
What Is Wage Garnishment?
Wage garnishment occurs when your employer legally withholds money from your paycheck to be sent to another party, such as a creditor. In the case of tax debt, this party is the IRS. Other types of debt that may result in wage garnishment include the following:
● Student loan debt
● Unpaid child support
● Unpaid alimony
● Judgment debt (following a lawsuit against you)
This article refers only to tax debt garnishments, which the IRS collects to pay back taxes, penalties, and interest.
Is a Tax Levy the Same as Wage Garnishment?
The terms “tax levy” and “wage garnishment” are not precisely the same. Wage garnishment may result from a tax levy, but a tax levy is not always a wage garnishment.
A tax levy satisfies tax debt by seizing property owned by the debtor. A tax levy is not the same as a lien. A tax lien is only a legal claim on the property, not its seizure. A levy is a seizure of property.
The IRS can levy different property types for payment, including bank accounts, vehicles, houses, Social Security income, and in this case, wages.
How Much Can the IRS Take in Wage Garnishment?
You will not lose your whole paycheck to wage garnishment. The IRS will garnish roughly 25 to 50% of your disposable income in general. To determine how much to garnish from each paycheck, the IRS uses formulas that consider the following factors about you:
● Number of dependents
● Filing status
● Applicable exemptions
● Standard Deductions
To determine the exact amount the IRS can garnish from each paycheck, reference Publication 1494. This IRS document offers guidance in wage levy exemptions. They are allowed to garnish all non exempt income.
What Are the Exemptions?
The exemptions from wage garnishment determine the amount that the IRS cannot take from your paycheck each pay period. This number grows if you have dependents, as well as other circumstances. Take these numbers from the 2019 tax year as an example of the possible exemptions:
● Single with no dependents: $12,200
● Head of household with two dependents: $26,650
● Married, filing jointly with two dependents: $32,700
Some payment types are exempt from garnishments altogether:
- Some annuities
- Some pension payments
- Income needed to pay other judgments, such as child support
To summarize, the IRS can legally take all income except for the exempt amount.
How Will I Be Notified?
The law requires the IRS to send a series of notices to you before garnishing your wages. These IRS collection notices include the following:
● Notice and Demand for Payment: First, the IRS notifies you of the debt and demands payment. If you pay the debt in full or set up a payment agreement at the time of this notice, there will be no tax levy.
● Final Notice of Intent to Levy: At least 30 days before the garnishment begins, the IRS will send you this final notice of its intent.
● Notice of Your Right to a Hearing: This notice explains your right to a Collection Due Process (CDP) hearing, where you make payment agreements or contest the debt.
Be aware that the IRS will send these notices to your last-known address. Ensure that the IRS has your current address or risk missing these notices. In that situation, you may first hear about the garnishment from your employer, who is also required to notify you.
When Will the Wage Garnishment End?
The IRS will stop collected wage garnishments once you pay the tax debt in full or if one of the following circumstances becomes applicable:
● You enter into a payment agreement with the IRS
● The period for collections ends, even if you have not paid the debt in full
● The garnishment is putting you into financial hardship (and you can prove it)
● You go bankrupt
Note that the IRS will not release wage garnishments unless you are in filing compliance, which means you have filed all unfiled tax returns for previous years.
Contact Our Tax Professionals For Help
If the IRS has sent you a Notice and Demand for Payment or if you otherwise need help to resolve your tax debt, contact us at Levy & Associates.
Our team includes all of the professionals your case needs: attorneys, CPAs, accountants, tax consultants, and former IRS revenue officers. Call us today at 800-TAX-LEVY for a free consultation.