What Makes the IRS Garnish Wages?

If you ignore tax bills from the Internal Revenue Service, don’t be surprised when your employer notifies you that the IRS has filed a wage garnishment order against you in order to seize a portion of your wages each pay period. Unlike commercial creditors, the IRS does not have to obtain a court judgment against you before it submits a wage garnishment order to your employer.

Tax Debt

The IRS is responsible for collecting taxes from business and individuals. If the IRS garnishes your wages, you can assume that you owe a federal tax debt that you neglected to pay. While the IRS can withhold your tax refund in lieu of payment to another federal agency, it will not garnish your wages on behalf of another creditor.

Time Frame

The IRS does not garnish your wages immediately upon discovering that you owe a tax debt. Rather, the agency notifies you of the unpaid balance via a Notice and Demand letter. If you do not respond to the Notice and Demand letter, the IRS will send you a second letter 30 days before it intends to serve your employer with the garnishment order. Failing to respond to either letter will result in wage garnishment taking place. The wage garnishment will continue until you pay off the debt or the 10-year statute of limitations expires on the tax debt.

Amount Exempt

Title III of the Consumer Credit Protection Act limits commercial creditors to garnishing only 25 percent of a debtor’s disposable wages. Special exceptions apply to wage garnishment for a federal tax debt. The amount of your income exempt from tax garnishment depends on your filing status and how many exemptions you claimed when you filed your most recent tax return.
For example, if you are single, receive payment weekly and only claimed one exemption on your tax return, $182.69 per week is exempt from seizure. If you claimed four exemptions on your most recent tax return, however, the amount exempt from garnishment increases to $396.15. The IRS can seize any income you earn in excess of the exempt amount.

Warning

Wage garnishment is only one of the many collection methods available to the IRS. If the IRS cannot garnish your wages, it may garnish other income you receive. Whereas federal law does not permit commercial creditors to seize your federal benefits, the IRS can do just that – seizing a portion of your Social Security payments, veterans benefits, disability benefits or retirement pension as payment for your delinquent taxes. The IRS also can garnish your bank accounts, foreclose on real estate and seize your personal property in lieu of payment.

References

• Internal Revenue Service; Levy; February 2011
• U.S. Department of Labor; Title III – Consumer Credit Protection Act; September 2009
• Internal Revenue Service; Publication 1494; 2011
• Federal Trade Commission; Creditors Seeking Federal Benefits in Your Bank Account?; May 2009
• Internal Revenue Service; Topic 201 – The Collection Process; February 2011

Resources

• U.S. Department of the Treasury; Answers About Garnishments; June 2011
• Bankrate; How Wage Garnishment Works; Jenny C. McCune; 2011
• Internal Revenue Service; Many Types of Free Tax Help Available From the IRS; January 2011