One of the IRS’ most powerful tools to collect a tax debt is wage garnishment. Wage garnishment is the ability to take a portion of an employee’s wages directly from his or her paycheck. Wage garnishment is a very intrusive method of collection and several ways to deal with it are discussed below.
Background: Wage Garnishment Process
Before the IRS can begin taking money directly from a taxpayer’s paycheck, it must go through several steps. It generally begins with written notice to the taxpayer regarding the amount of the tax debt along with any penalties and interest. Assuming the taxpayer doesn’t take suitable action in response to this first letter, the IRS will send another written notice, explaining the intent to place garnish the taxpayer’s wages.
Assuming the taxpayer still does not adequately respond within a certain period of time (typically 30 days), the IRS will start garnishing the taxpayer’s wages. The IRS does not need to get a court judgment before garnishment can begin.
The IRS will then directly contact the taxpayer’s employer and force them to deduct a portion of the taxpayer’s paycheck and send it to the IRS. The amount the IRS can garnish depends on the size of the paycheck. The law does not limit how much the IRS can garnish, but rather, how much the IRS must leave behind in each paycheck for the taxpayer. The amount the IRS must leave will depend on the taxpayer’s filing status.
Stopping the IRS from Wage Garnishment
The following is a list of methods for stopping or stalling wage garnishment. None of the methods will actually make the entire tax debt go away, but will allow the taxpayer to pay the outstanding tax bill using another method or buy time before wage garnishment resumes. Also, all of the below methods require any back tax returns to be filed with the IRS.
Method #1: Pay Off the Tax Debt
This method is idealistic, since the wage garnishment process probably wouldn’t have started if the taxpayer had enough money to pay his or her taxes. However, getting rid of the IRS debt, even if it means incurring interest charges by borrowing money, might be worth it for emotional well-being if nothing else.
Method #2: Apply for an Offer In Compromise
An offer in compromise is a means of paying off a tax debt for less than the full amount. Taxpayers must apply for an offer in compromise and it’s up to the IRS’ discretion whether to accept it. For more information, check out our earlier offer in compromise blog post.
Method #3: Set Up a Payment Plan
If a monthly installment agreement can be established where the tax debt can be paid off in three years or less, the IRS will usually agree to stop garnishing a taxpayer’s wages.
Method #4: Claim Financial Hardship
If the taxpayer can prove that the wage garnishment is creating a severe financial hardship, the garnishment can be halted until the taxpayer’s financial situation improves. The taxpayer will be required to show that the wage garnishment does not leave enough money for the taxpayer to pay for basic living expenses.
Method #5: Change Jobs
When a taxpayer changes jobs, the IRS eventually finds out, then goes through the process of contacting the new employer and re-establishing the wage garnishment. This can buy the taxpayer some time where his or her wages aren’t garnished, although it merely delays the inevitable.
Method #6: Declare Bankruptcy
This is an extreme option, given the financial repercussions to the taxpayer’s credit history and cost of filing for bankruptcy. Also, it won’t wipe out the tax debt, but it can stop the wage garnishment for a period of time.
Expert Advice Is Recommended
Deciding which method is best will depend on each taxpayer’s unique circumstances. Figuring out which option to use and how to use it will almost always require the advice of a qualified tax professional.