Do you know the methods the IRS could use to collect your owed money via wage garnishment?
To stop a wage garnishment for back taxes, you need a smart plan.
This often means negotiating with the IRS and using certain legal options.
Here’s a comprehensive overview of the steps and considerations to address this issue:
Understand the IRS Wage Garnishment Process
A wage garnishment or wage levy happens when the IRS tells your employer to take a portion of your salary. This is also known as IRS wage garnishment. This money goes toward any unpaid tax debts you owe. This process continues until the debt is paid in full, you make alternative arrangements, or the levy is lifted.
- What is Wage Garnishment? The IRS can take a part of a person’s wages to collect unpaid taxes. This is one of the IRS’s strongest collection actions. They tell the employer to withhold a part of the employee’s paycheck. This continues until the debt is paid off.
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IRS Notice Requirements: Before garnishment begins, the IRS typically sends a series of notices, including:
- CP14: Initial notice of balance due.
- CP501, CP503, and CP504: Follow-up notices for unpaid taxes.
- Letter 1058, also known as LT11, is the final notice before your wages are taken. This notice informs you of your right to a hearing. It provides the taxpayer 30 days to respond and request a hearing.
Immediate Steps to Stop Wage Garnishment
- File for a Collection Due Process (CDP) Hearing: If you get a Final Notice of Intent to Levy, you have 30 days. You can request a CDP hearing by using Form 12153. This halts the garnishment process temporarily while the appeal is pending. During the hearing, you can present alternative solutions like installment agreements or an Offer in Compromise.
- Apply for an Installment Agreement (IA): You can lift the garnishment by making a formal agreement with the IRS. The IRS generally prefers consistent, smaller payments over garnishing wages.
- Submit an Offer in Compromise (OIC): This option is for taxpayers unable to pay the full amount of their tax debt. An OIC lets them pay less than what they owe. They must show that paying the full debt would cause financial hardship. However, the acceptance criteria are strict.
- You can request Currently Not Collectible (CNC) status if paying your tax debt would cause you serious financial problems. This means the IRS will not require you to make payments for now. This stops all collection activities, including wage garnishments.
Other Alternatives to Consider
- Partial Payment Installment Agreement (PPIA): This is for taxpayers who cannot pay their tax debt all at once. Instead, they can make smaller, manageable payments over time. While this does not necessarily reduce the amount owed, it can stop an IRS wage garnishment.
- Seek Innocent Spouse Relief: If your tax debt comes from your spouse or ex-spouse, you might qualify for Innocent Spouse Relief. This could remove your responsibility for the debt and stop the garnishment.
- File for Bankruptcy: Filing for Chapter 7 or Chapter 13 bankruptcy is a last resort. However, it can stop IRS collections, including wage garnishments, right away. Not all tax debts can be wiped out in bankruptcy. It is important to talk to a bankruptcy attorney before you proceed.
4. Negotiate with the IRS Directly
- If you missed the deadline to request a CDP hearing, you can still talk directly with the IRS. You can use the Collection Appeals Program (CAP) to negotiate. This is available before or after a levy starts. However, it does not stop collections while the appeal is ongoing.
- Request a Release of Wage Levy: You can ask to release a wage levy if it causes you financial hardship. You can also request a release if you have made plans to pay the amount owed. The IRS is required to release a levy under certain conditions as outlined in IRC §6343(a).
5. How Much of Your Wages Can the IRS Garnish?
- The IRS follows federal rules for wage garnishment. This means they can take a large part of your disposable income. Disposable income is what you have left after required deductions. The amount exempt from garnishment depends on filing status, number of dependents, and the current standard deduction. The IRS will send Form 668-W to the employer, which outlines the garnishment process and exemptions.
6. Working with a Tax Professional
- Hire a CPA or Enrolled Agent. An experienced tax professional can help you with IRS negotiations. They can prepare the necessary forms and may speed up the resolution process.
- Avoid Scams: Be careful of companies that claim they can settle your debt for “pennies on the dollar.” They often do this without looking closely at your financial situation. The IRS has strict requirements for debt relief options, and a reputable tax professional will provide realistic guidance.
7. Rebuild Financial Stability After Wage Garnishment
- After successfully stopping the garnishment, it’s essential to maintain compliance with the IRS by:
- Filing all past-due returns.
- Staying current on estimated tax payments if you are self-employed.
- Avoiding future tax debt to prevent further garnishments.
Summary
You can stop an IRS wage garnishment using different strategies. These include asking for a CDP hearing, negotiating an installment agreement, or applying for hardship relief. Each approach requires timely action and proper documentation. You can handle this issue on your own, but talking to a tax professional can help. They can guide you to the best choice for your situation. This can also improve your chances of a successful outcome.
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