Imagine this scenario: Payday comes around, and you log onto your bank account—only to realize a large portion of your wages are missing. This is the reality for taxpayers that have been hit with a government wage levy after failing to pay off their taxes.
What Is a Wage Garnishment?
The IRS can garnish your wages to make up for a tax debt that you’ve consistently failed to pay. If a garnishment is enforced, your employer may be required to continue the levy until your debt is settled.
A wage levy can be financially devastating, as the IRS is allowed to seize up to 65 percent of your paycheck and/or any social security checks. A wage garnishment won’t take you by surprise—the IRS sends out numerous notices before taking this kind of action.
Their final notice, the aptly-titled Final Notice of Intent to Levy, will be sent to your home at least 30 days before your wages are seized.
Will My Job Be Affected?
A single wage garnishment isn’t likely going to cost you your job, as the Consumer Credit Protection Act prohibits employers from firing an employee due to the garnishment of a singular debt. However, this protection ceases after your second wage garnishment.
Some employers may view a wage garnishment as an indication of poor management and lack of responsibility, which could affect your superior’s perception of your work ethic.
Taking Action: What You Can Do if the IRS Has Garnished Your Wages
1. Call the IRS
If you’ve realized your wages have been garnished, speak with your employer and ask for a copy of the wages levy. This notice should offer a number—call it immediately. The sooner you contact the IRS, the sooner you’ll be able to work out a payment plan that stops the levy.
2. Determining Your Monthly Disposable Income
After you’ve contacted the IRS, they’ll work to determine your monthly disposable income. What you deem “disposable” will likely be very different than what the government agency does; many delinquent taxpayers find their levy amount is higher than they can afford in the long run.
If you can prove to the IRS that you have no monthly disposable income, your levy may be released; however, this is an unlikely scenario.
3. Apply for an Offer in Compromise
If your financial situation is particularly dire, you may qualify for an offer in compromise. This IRS tax resolution program allows delinquent taxpayers to settle their debt for a lesser amount. You’ll need to negotiate this number with the government agency; typically, there will be a need to work with a tax specialist to come up with a realistic sum.
If the IRS accepts your offer, this sum will be the compromised tax now owed. After you’ve finished paying off this amount, your debt will be cleared.
4. Apply for Currently Not Collectible Status
If you qualify under the IRS hardship program, you may be able to stop collections on your tax debt. Should your account be declared “Currently Not Collectible”, the collection process is paused; however, the longer it’s paused, the more interest you’ll accrue—meaning your total bill will be more in the long run.
5. Filing for Bankruptcy
Bankruptcy should always be your last resort when dealing with financial woes, but in certain scenarios, filing for bankruptcy can be the most effective method of debt management.
Bankruptcy law requires that wage levies be cleared once filed. Filing bankruptcy may clear you of all the charges, but the consequences of filing may be more consequential than paying your tax debt would have been.
If you’re in debt with the IRS, it’s important to consider the repercussions of failing to pay the amount owed. A wage garnishment can have long-lasting effects on your financial situation and your employment.
If you believe you’re vulnerable to a wage levy, hire the help of a professional and get in contact with the IRS as soon as possible. Being proactive in this type of financial situation can pay dividends in the long run and help you (and your family) avoid the consequences of overdue tax debt.