Most people have at least passing knowledge of wage garnishment --the process of deducting money from an employee's monetary compensation (including salary) as a result of a court order. Fortunately for those who find themselves in the unfortunate position of having their wages garnished, these payments are limited by federal law to 25 percent of the employee's disposable income. Unfortunately, those payments will continue until the entire debt has been paid off. Any kind of debt can lead to garnishment of wages, but the most common types include back child support, unpaid court fines or judgments, defaulted student loans , and the biggie--taxes owed to either state governments or the IRS.
Once the garnishment has been served on an employer, the company takes a portion of the employee's salary during the payroll process in order to cover the required payment. Employers are sent an official notice giving them the amount to hold back and cannot refuse to garnish wages. Wage garnishments can have a negative impact on credit, reputation, and the willingness of lenders to extend offers of credit and loans.
When Can the IRS Garnish Your Wages?
Several conditions must be met for the IRS to begin wage garnishment for tax debts:
- The IRS must have assessed the tax and sent a Notice and Demand for Payment
- The taxpayer must have neglected or refused to pay the tax.
- The IRS must have sent a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy. The IRS can serve the Final Notice in person, leave it at the taxpayer's home or workplace, or send it to the last known address by certified or registered mail.
Of course, that last condition only requires the IRS to send the Final Notice to the last address known to it. They are under no obligation to ensure that taxpayers actually received the Notice, meaning taxpayers may not actually find out about the garnishment until it starts being deducted from their wages. This makes it imperative that taxpayers make sure they keep the IRS updated with their current address at all times.
One option that can help take away the stress of a wage garnishment you can't afford is that of filing for bankruptcy. If you're already up to your ears in debt and barely able to make ends meet each month, one wage garnishment can be the straw that breaks the camel's back. Filing for bankruptcy stops tax garnishments. Taxing authorities must immediately stop garnishments as soon as they receive notification of the bankruptcy, no matter what kind of tax debt you owe. Of course, you must still pay back the taxes you owe, but this will at least help protect your paycheck for the time being, putting you in a stronger position for dealing with the tax debt on terms you can afford.
In certain cases, you may be able to discharge specific kinds of tax debt and the bankruptcy attorney can also structure an easier repayment plan with a chapter 13 bankruptcy . Either way, however, it's a good idea to consult a bankruptcy attorney who may be able to get rid of the tax garnishment forever--or at least help you get the breathing room you need to dig yourself out of your current financial hole.