Does Wage Garnishment Affect Income Tax?
Wage garnishment may be imposed by a court or the federal government if there is a delinquency owed for a legal debt to the government of by a court order. For example, a person may have wages garnished due to back taxes or for unpaid student loans. The Internal Revenue Service does not afford a person subject to garnishment any tax advantages because his income is diverted to satisfy a debt.
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Taxation of Income
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Income earned as wages is taxed by the IRS through payroll taxes. The person's tax liability is determined through a variety of factors, including the amount of income, any qualifying deductions and tax credits.
Purpose of Garnishment
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Garnishment is a seizure of a specified amount from an employee's paycheck by a government entity or ordered by a court to satisfy a debt. For example, an estranged father's paycheck may be garnished to pay overdue child support obligations. A debt collection agency also can levy a person's wages through a court order.
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Tax Effect of Garnishment
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Tax regulations do not allow the person subject to garnishment to deduct the lost wages from their income for tax purposes even though they never had possession or control of the money. Just as a person is not permitted to deduct payments toward credit card debt from his taxes, he is also not allowed to deduct debt payments through garnished wages.
Qualified Interest Deductions
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A person may be permitted to deduct any interest payments on delinquent student loans from their taxes even though the payment on the interest was made through wage garnishment. However, the person subject to garnishment may not deduct any penalties on the delinquent student loan from taxable income as it does not qualify as interest payments.
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References
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