The IRS can utilize a number of different methods to collect on a tax debt that you owe. Among them, wage garnishment is one of the most common. You may be able to avoid an IRS wage garnishment by learning under what circumstances it is used and how it could possibly be released if you owe a debt to the IRS.
How Does an IRS Wage Garnishment Work?
Before the IRS can legally garnish your wages, it must first notify your employer of its intent to do so. This notification immediately alerts your employer to your tax troubles. By law, your employer must permit the IRS to withhold money from your paychecks to pay off the debt.
Moreover, the IRS can withhold a larger amount of your paychecks than other types of creditors. It only has to leave you $375 out of each paycheck on which to sustain you and your household. If you are self-employed, the IRS can claim all of your yearly income to pay off your tax debt.
How an IRS Wage Garnishment Affects You
The IRS has virtually unlimited access to your income once it decides to garnish you. It has to leave you enough with which to cover necessities. However, it does not consider certain expenses to be necessities. These expenses include:
- Mortgage or rent
- Medical or insurance costs
The IRS uses a pre-determined table to decide how much to garnish out of your paychecks. As mentioned, it only has to leave you $375 on which to live out of each paycheck. You could end up with far less income with which to cover basic expenses in your household. You could possibly even face financial hardships because of having your wages garnished by the IRS.
Removing an IRS Wage Garnishment
Once the IRS begins garnishing your wages, it is not often inclined to release it until the debt is paid in full. It may not even allow you to request a release of the garnishment if you are experiencing financial hardships such as not being able to pay your rent or mortgage.
While difficult, it is not entirely impossible to have an IRS wage garnishment released before the debt is paid in full. Your best option for asking for a wage garnishment release could be to hire a tax resolution specialist to assist you in the process. A tax professional can appeal the wage garnishment or present evidence for why it should be released right now rather than after the debt is satisfied.
Examine Your Tax Situation
Another reason to hire a tax professional is to assess the reality of your tax situation. You may not know how much you owe to the IRS. You also may not know if you have any missing returns that need to be filed.
A tax resolution specialist can help you request a copy of your outstanding account balances from the IRS. He or she can also help you find any discrepancies in your records that could result the debt being larger than you actually owe. Your tax professional can contact the IRS on your behalf and get a copy of those records so you can possibly avoid a wage garnishment.
Pay Off Your Debt
Once you know how much you owe, you may then decide how best to pay off the account. If possible, you should pay off the account entirely in one lump sum payment.
If you do not owe a huge amount but more than you have saved in your bank account, you could ask your relatives or friends for a small loan. This idea may be best if you want to avoid expensive penalties and interest from being applied to your IRS debt.
Set Up an Installment Agreement
If you cannot pay off what you owe in full in one payment, you could request to be set up on an installment agreement with the IRS. To make this request, you must fill out and submit IRS Form 9465.
An installment agreement allows you to make monthly payments on what you owe. The payments are also based on your income, so they are affordable and in line with what you earn. You can also choose on what day of the month you would like that payment to be due.
Request an Offer in Compromise
Another option you have is to request an Offer in Compromise. An OIC allows you to pay off your account for less than what you owe. You could end up paying pennies on the dollar for your entire tax debt.
Because the IRS grants relatively few OICs to taxpayers, you may need the help of a tax professional to make this request for you. A tax resolution specialist will know what forms to file and what evidence to present to show that an OIC is the most realistic option for settling your tax debt.
Demonstrate Financial Hardship
If you cannot get tax relief through any other option, you may succeed by demonstrating genuine financial hardship. If you can prove that paying off your IRS debt would result in extreme financial difficulties for you and your family, you may earn a reprieve from the IRS.
To demonstrate this hardship, you will be asked to show proof like bank statements and paycheck stubs. You will not be given a total wage garnishment release, but you will be given enough time to get your financial affairs in order, so you can make payments on or pay off the debt entirely in the near future.
Appeal a Tax Levy
By law, you have the right to appeal an IRS tax levy. You have 30 days from the time you receive written notice of the IRS' intent to garnish your wages.
You can request a hearing to dispute the amount you owe. You also can have a tax adviser with you to argue your case during the hearing.
Consider Filing for Bankruptcy
As a last measure, you can file for bankruptcy to avoid an IRS wage garnishment. This option should be used when all other options fail.
Filing for bankruptcy prevents the IRS from collecting money from you. It will not forgive your tax debt. However, it stops the IRS from garnishing your wages until after the bankruptcy case has been discharged. By that time, you and your bankruptcy attorney may have a solution for settling the account in a timely manner.
Get the Assistance of a Tax Resolution Specialist
Regardless of the method you use to avoid an IRS wage garnishment, you may fare better by hiring a tax resolution specialist to help you. A tax professional can help you figure out what repayment method is best for you. He or she can also communicate with the IRS on your behalf and file and submit paperwork to request an OIC or installment agreement to pay off what you owe.
An IRS wage garnishment can leave you in financial difficulties that may last for years. The IRS can take as much money as it wishes out of your paychecks. When you hire a tax resolution specialist, you may be able to use other methods to help you avoid an expensive and lengthy IRS wage garnishment.