The IRS can implement wage garnishment to collect back taxes owed if you haven’t responded to their demands for payment. Unfortunately, you may first become aware that an IRS wage garnishment has been put into affect when you receive your paycheck and – surprise! – it’s significantly smaller than it should be because part of it was sent to the IRS.
The IRS is required to notify you that they intend to levy a wage garnishment, but they don’t have to notify you when it will go into affect or how much they are going to have deducted from your paycheck. This means you can get hit with a real shock, so it’s important to understand just what it is and how it will affect you in order to stop wage garnishment.
How IRS Wage Garnishment Works
The IRS will always give you the opportunity to pay off the taxes you owe in full; unfortunately, if you are significantly behind or owe a large amount this isn’t always possible. Many people ignore the notices they get from the IRS because they know they can’t pay everything at once. This mistake can lead to the IRS wage garnishment. Once they send out a levy notice (Notice of Intent to Levy and Notice of Your Right to a Hearing) by mail, they can garnish your wages as soon as thirty days later.
The wage garnishment is basically a notice sent to your employer’s payroll department informing them that they must deduct a specific amount from every one of your paychecks and send it to the IRS. If they don’t comply, they will face stiff penalties and fines. It is an embarrassing and uncomfortable situation for both you and your employer. You aren’t protected by being self-employed, either. The IRS can send notices to every one of your accounts receivables and have the money diverted directly to the IRS.
How Much Can be Garnished?
The federal government has put a cap on how much can be withheld from a paycheck through wage garnishment specifically to pay back taxes. The guidelines established by the government are based on what they consider “disposable earnings” or what you earn after all social security, federal and state taxes are deducted from your paycheck. If you have other automatic payroll deductions such as retirement contributions, those are included in what can be garnished. The IRS can take as much as 25% of your disposable earnings.
If you are living paycheck to paycheck or have significant obligations, losing a large chunk of your paycheck to wage garnishment can be devastating. You should try to avoid it by setting up a payment plan before it gets to this point, but it is not too late once garnishment begins. Consult a good tax specialist to see how to begin repayment and have your IRS wage garnishment lifted.