How can I avoid wage garnishment?

Wage garnishment is a very effective tool used by IRS to collect overdue taxes. In this way, IRS ensures that it gets money directly from your salary. It can take money from salaries, bonuses, commissions as well as from retirement earnings. You need to avoid this situation in the first place, but if it occurs unfortunately, then there are some effective ways to handle it.

If you do not pay your taxes, IRS has an authority to collect these taxes out of your wages. It is called wage garnishment. If this garnishment is filed, your employer is required to collect and pay back a large portion of money from your paycheck to IRS. The garnishment continues until the total tax is paid or IRS releases the garnishment in response to an agreement.

Usually The Garnishment occurs due to the following reasons -

a. If IRS has assessed the tax and has sent to the taxpayer a demand for payment.

b. If a taxpayer has ignored or refused to accept the tax liability.

c. If IRS has informed the taxpayer with a final notice of intent to garnish at least 30 days before such action. There is no standard formula with the IRS about how much it should garnish. The amount can vary from 30 per cent to 70 per cent of your paycheck. IRS sends a notice to the employer of the taxpayer to withhold a specific amount out of the wages of the taxpayer in order to send it directly to IRS. There is no choice for the employer to refuse such order from IRS. The refusing employer is personally liable for the money which was not received by IRS. The garnishment is made in a particular order. Firstly money for federal tax is garnished, then the local taxes are garnished and then the other dues by credit card companies etc. are garnished. The garnishment continues until the total tax due is paid or an alternative arrangement is made to pay.

Wage garnishment can be avoided in the following manner -

1. You need to contact IRS very quickly on receiving the notice of levy letter. If you ignore the notice or sit on it, the situation can slip out of your hands. There is a 21 day period available to you.

2. If you need to make an appointment with the IRS in order to enter into an agreement for the payment of taxes. It is certainly the better course of action instead of getting intimation from your employer that he needs to withhold money from your wages. Also, your financial burden may be more if you do not enter into an agreement and IRS approaches your employer.

3. You should preferably approach a tax consultant so that you can negotiate with the IRS and make an agreement for the settlement of dues. You may be able to set up a plan for repayment or give an offer for a compromise settlement.

4. Try to avoid actions which are considered flagrant. You cannot continue making contributions to your retirement accounts while claiming to IRS your inability to pay. In this situation IRS can levy your retirement accounts. If your tax liability is based on illegal income or if you are accessed with a fraud penalty or if you have placed assets outside the United States and they are beyond the jurisdiction of IRS, then IRS can proceed to levy your retirement accounts and retirement income. Your employer cannot fire you just because you have got garnishment from IRS. If any employer does so, he is subject to a fine of $1000 and one year imprisonment.

IRS wage garnishment applies to all the future income and the amount remaining in your hands after the garnishment is so small that it is impossible to live with that. The ideal solution to avoid wage garnishment is to pay your taxes on time and in full. However, should you face wage garnishment, handle the situation quickly and do not panic.

Chintamani Abhyankar, is a well known expert in the field of finance and taxation for last 25 years. He has written many books explaining inside secrets of the magic world of personal finance. His famous eBook Stop donating your money to IRS which is now running in its second edition, provides intricate knowledge and valuable tips on personal finance and income tax.