Wages Garnished for Your Tax Debt? Here's How to Stop It

Wages Garnished for Your Tax Debt? Here's How to Stop It

• Jan 01, 2022

If you have unpaid taxes, wage garnishment is one of the more common methods that the IRS will use to collect on that debt. Under federal law, the IRS is able to seize your income to recover any federal tax debt that you owe, including garnishing your wages, salary, commissions, and even those precious bonuses. The IRS is allowed to garnish up to a shocking 70% of your income—and they can do this without even having to take you to court. Is there anything you can do to stop this from happening? Here are a few options that are available to you.

The Wage Garnishment Process

Before we talk about how to stop IRS wage garnishment, let’s talk about what’s required before they can even begin garnishing your wages. As mentioned above, the IRS doesn’t have to take you to court; however, they do have to follow certain steps before beginning to take money out of your paychecks. That process includes three different written notices:

1. First Notice – The first written notice will state the amount you owe, including penalties and interest. It will also provide you with a due date to pay off the balance.
2. Second Notice – If the above-mentioned deadline passes, you’ll receive a second written notice called the “Final Notice of Intent to Levy.” This must be sent 30 days before any wage garnishment can begin.
3. Final Notice – The last notice you’ll receive will inform you of your right to request an appeal within 30 days of the final notice. If you don’t take action within that time, they’ll begin garnishing your wages.

Obviously, the best way to stop wage garnishment is to take action in this time window—and stop the garnishment before it even starts. However, if you’ve moved through these three stages and your wages are already being garnished, don’t worry. There are still options available to you.

Financial Hardship Exemption

If you can show that the IRS’s wage garnishment is causing extreme financial hardship for you and your family, you may qualify for an exemption. There are several financial hardship exemptions offered by the IRS, but the most common one to stop wage garnishment is to be put into a “currently not collectible” status, or CNC. The CNC status will immediately stop wage garnishment and other attempts to collect on your tax debt. However, if your financial situation changes, collection attempts can resume.

Installment Plan

While it’s best to get onto an IRS payment plan before the IRS begins to garnish your wages, it’s not too late to pursue this option. You will need to reach out and make contact with the IRS, and demonstrate your inability to repay your entire tax debt. This allows you to apply for a long-term installment plan on your tax debt. This type of plan requires you to make monthly payments to the IRS; you will be able to work with the IRS to determine a monthly payment amount that is affordable for you and reasonable for the amount you owe.

While you will still be sending the IRS money every month, the IRS will stop garnishing your wages once you’ve set up your installment plan. However, if you miss a payment on this plan, they may begin collecting from your paycheck once again.

Offer in Compromise

An Offer in Compromise (OIC) is much more difficult to receive than an installment plan, but if you do qualify, you can settle your tax debt for less than what you owe. An OIC is considered to be another form of financial hardship exemption offered by the IRS. Similar to applying for an installment plan, you will need to reach out to the IRS and submit an application for an OIC. On your application, you will need to provide detailed financial information that demonstrates paying your full tax debt would cause serious financial hardship. You will also make an offer for the amount you believe you can afford to pay to the IRS, as opposed to the full amount owed.

The IRS will review your application and your finances and assets in great detail to determine if the offered amount is, in fact, the most they can reasonably expect to collect on your tax debt. If they agree to your OIC, you will need to pay the full amount offered, and your tax debt will be considered settled.

A Note about Bankruptcy

While declaring bankruptcy can erase many debts, it’s important to note that most tax debts cannot be discharged under a standard Chapter 7 bankruptcy. While Chapter 13 bankruptcies are more likely to dismiss tax debt, it’s very difficult to know which tax debts are dischargeable, and you may still owe taxes even after declaring bankruptcy. We don’t recommend this method except as a last resort.

Get Help with Your Tax Debt

Stopping IRS wage garnishment can be difficult, but the IRS Advocates are here to help. We’ll guide you through your options to stop wage garnishment and settle your tax debt in a way that minimizes financial difficulties for you and your family. Contact us today to get the help you need, and stop IRS wage garnishment in its tracks!