IRS Wage Garnishment and Debt
A wage garnishment happens when an employer is legally required to withhold some of a debtor's income to fulfill a debt the latter owes. Creditors must obtain a court order to garnish wages. But the IRS can impose a wage garnishment as long as it satisfies the legal criteria. An IRS wage garnishment is also called a wage levy. The levy occurs when the debtor incurs delinquent taxes.
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Legal Criteria
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The IRS must satisfy the following legal requirements before issuing a wage garnishment: evaluate the amount due, including interest and penalties, then send the debtor a Notice and Demand for Payment. If the debtor still does not pay the tax, the IRS sends him a Final Notice of Intent to Levy and Notice of Your Right to A Hearing, also called a levy notice. The debtor has 30 days to appeal the levy.
Employer Responsibility
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Once the IRS sends the employer Form 668-W Notice of Levy on Wages, Salary and Other Income, the employer must adhere to the instructions on the Notice. Wage levies are time-sensitive materials, ordering the employer to make the withholding from the employee's next paycheck. Therefore, employers should have a mail handling system in place that routes wage garnishments to the appropriate department immediately upon receipt. The employer must give the employee the Statement of Exemptions and Filing Status included in the levy paperwork to complete. The employee is required to indicate his filing status and number of exemptions on the form and return it to the employer within three days. If he fails to submit the form on time, the employer can put him at married filing separately with one allowance until he submits the Statement.
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Withholding Medium
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The IRS requires that employers use Publication 1494 included in the levy notice to calculate the garnishment amount. Publication 1494 informs the employer of the amount exempt from the garnishment, based on the employee's filing status and number of exemptions. For example: the employee is paid weekly and claims single/two. According to the 2010 Publication 1494, $250 would be exempt from garnishment. The employer subtracts the exemptions from the employee's net pay to arrive at the garnishment amount, which it then forwards to the IRS.
Release
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The IRS can release the wage garnishment if the debtor pays off the debt, wins the appeal, makes payment arrangements, or if he was already in bankruptcy when the IRS evaluated the tax and sent the levy notice. Furthermore, it can release garnishment in hardship cases or if it is no longer legally able to collect the tax. The latter applies if the statute of limitations has expired--10 years after the levy assessment date. The employer cannot stop the withholding until the IRS says so.
Warning
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IRS wage garnishments generally take priority over all other existing garnishments--except child support--according to Tax Matters Online. If the employer fails to honor the levy as instructed, it can be liable for the full garnishment amount plus interest and penalties. If the employee terminates before the levy is fulfilled, the employer must notify the IRS accordingly. It should also inform the IRS of the employee's new employer and address, if known.
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References
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