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BACK TAXES AND TAX DEBT

12 Things to Know About IRS Wage Garnishments (And How to Get Them Released)

Jim Buttonow, CPA, CITP SVP Post-Filing Tax Services Published On August 27, 2021

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When taxpayers owe the IRS and are not in an arrangement to pay or defer the tax liability (via extension to pay, payment plan, currently not collectible status, or an offer in compromise), they can be subject to a levy of income and assets. 

One of the most common forms of levy is the “wage garnishment.” Since July 2018, the IRS has increased the number of wage levies issued.

12 insights and tips on garnishments

With more garnishments in place, here are 12 insights and tips taxpayers need to know about IRS wage garnishments and how to get them released:

  1. The IRS knows where you work: The IRS generally knows a taxpayer’s income sources. It collects this information from employers from prior year wage and income information returns (i.e. Form W-2 and 1099). The IRS issues wage garnishments using this information on file from the most previous tax year. 
  2. The IRS usually provides several notices before issuing a garnishment: These notices, called the IRS collection notice stream, provide the taxpayer several opportunities over multiple months to pay the liability or enter into a collection alternative with the IRS.  The IRS generally sends a Final Notice of Intent to Levy and Notice of Your Right to a Hearing (IRS Letter LT11) before garnishing a taxpayer’s wages. Taxpayers can appeal a proposed levy by requesting a Collection Due Process hearing within 30 days of the date of their Final Notice of Intent to Levy and Notice of Your Right to a Hearing.
  3. Your employer will notify you of the garnishment: The IRS does not provide the taxpayer notification that a garnishment has been issued. The IRS issues the notice of levy directly to the employer who notifies the taxpayer of the garnishment.
  4. There are several ways to have a garnishment released: The IRS will remove a wage garnishment for several reasons including if the taxpayer pays the balance in full, the taxpayer enters into a collection agreement, the taxpayer prove to the IRS that the garnishment is causing a hardship, or the period for collection has ended. Most enter into a collection agreement.
  5. Filing compliance is generally required before a levy is released: This means you need to have all of your required tax returns filed. Unless the taxpayer is in a hardship, the IRS is reluctant to release a garnishment if the taxpayer has not filed all past, required returns (usually the past 6 years). Sometimes, the IRS allows a taxpayer to use an extension to pay to release the levy if the taxpayer can show that prior year filings will result in refunds and the taxpayer promises to file immediately.
  6. Tip - You can use an extension to pay (ETP) to remove a wage garnishment: If the taxpayer has not used a prior extension to pay agreement, the IRS may allow the taxpayer to use the ETP agreement to release the levy. However, if the taxpayer has not followed through on past agreements, the IRS is unlikely to allow the ETP for a garnishment release.
  7. The garnishment stays in place until released: Good news! The IRS will not take 100% of wages. Part of a taxpayer’s wages may be exempt from a wage levy based on the standard deduction and an amount calculated in part based on the number of the taxpayer’s dependents.  Certain other income is also exempt from levy including certain annuity and pension payments and income necessary to comply with judgments for support of minor children.  
  8. Need to work with IRS Collection because you are under IRS enforcement: The IRS is enforcing collection of back taxes. A wage garnishment is a serious matter. The garnished taxpayer is assigned to IRS Collection for enforcement of unpaid   taxes. Taxpayers will need to work with the IRS Collection function for a release of the levy. Also, further enforced collection can occur in the form of a Notice of Federal Tax Lien. It is unlikely that the IRS will also issue multiple levies – such as a bank account levy – unless the taxpayer is assigned to an IRS revenue officer for local field collection.
  9. Can’t put food on the table?: The taxpayer can request expedited release of a garnishment due to economic hardship. Taxpayers who cannot meet their basic living expenses and can provide the IRS evidence of hardship can ask for a hardship release without getting a collection agreement. In practice, this process can take some time. Especially if the initial IRS reaction is “we need more information about your hardship before we can release the garnishment.” Depending on the situation, it may be best for the financially stressed taxpayer to request currently not collectible status or an offer in compromise which will both release the garnishment.   
  10. Use the fax for an expedite garnishment release: Once the taxpayer qualifies for a release, the fastest way to get the release to the employer is to ask the IRS to fax a copy of the levy release to the employer. A garnishment release by mail can take 7-10 days. The taxpayer should be prepared to provide the IRS their employer’s phone, fax, and payroll contact information for the IRS to release the garnishment while on the call. Taxpayers should always follow up with the employer to make sure the release is received. 
  11. The IRS has Christmas spirit: Traditionally, the IRS does not issue wage garnishments during the last three weeks of December. This may seem friendly but there are other motives at play. The IRS likely does not have a lot of resources available to arrange for a collection agreement and garnishment release during Christmas time. There are usually many IRS employees on vacation during the latter part of December.  However, the IRS may seek other enforcement action during this time.
  12. The Taxpayer Advocate (TAS) can help:  TAS can help if the taxpayer is suffering a financial hardship. Wage garnishments are under the jurisdiction of IRS Collection. TAS can make recommendations and expedite hardship requests; however,  IRS Collection will make the final decision.

Best tip: Practice prevention

Taxpayers subject to other types of levies (bank, accounts receivable for a 1099 contractor, social security, etc.) can also follow most of these tips. The biggest tip for all who owe is to practice prevention. Meaning avoid the garnishment or levy by entering into one of the IRS collection alternatives before the garnishment is issued.

For assistance creating a strategy to address your tax issue, visit Jackson Hewitt’s Tax Resolution Hub to see the various ways we can help you.

 

About the Author

Jim Buttonow, CPA, CITP, is the Senior Vice President for Post-Filing Tax Services at Jackson Hewitt. He’s been a leader in helping taxpayers and tax professionals resolve tax problems with the IRS, where he had worked for 19 years in various compliance-enforcement positions. Prior to his current role, Jim’s consulting practice focused on the areas of tax controversy and tax administration, which included leading product development on tax problem software for tax professionals, testifying before Congress, advocating for IRS transparency and efficiency, and proposing innovative large-scale solutions for taxpayers and tax professionals. Jim is also the author of Tax Problems and Solutions Handbook, a publication aimed at helping tax pros work more effectively in post-filing matters and resolving their clients’ most common tax problems.

View Jim's LinkedIn Profile Jackson Hewitt Editorial Policy

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