When a taxpayer does not respond to notices, the Internal Revenue Service (IRS) can move to collect taxes due in several ways. One of those collection methods is paycheck garnishment, also known as a “wage levy.”
A “levy” is an action taken by the IRS to collect taxes and is authorized through the Internal Revenue Code (IRC). A levy can be used to seize your bank accounts, Social Security benefits, retirement, pension, or paycheck. A levy can also be used to seize real property, car, or other saleable assets to satisfy your debt. Basically, anything that is not exempt can be seized. To collect delinquent taxes, the IRS can also place a lien on your business, accounts receivable, real property, vehicles, and other items of value.
A levy allows the IRS to take your money or property, while a lien gives the IRS a claim to your property and accounts. Because the sudden loss of a bank account, property, or a greatly reduced paycheck has a stark impact, it is a good idea to understand how a levy works when it comes to your wages.
Depending upon your tax debt, the IRS may levy on a one-time basis against your bank account. To continuously collect money to satisfy your tax debt, the IRS can pursue your paycheck. Once in place, a levy on your wages will remain in effect until the debt is paid in full and the IRS releases the levy. Should you change jobs, the IRS will continue to garnish wages from your new employer.
The IRS informs your employer of a wage levy using Form 668–W(ICS). The levy will garnish all wages, including salary, bonuses, commissions, and other income. Your employer usually has one full pay period before garnishing your wages to the IRS. Before the wage levy is in place, you will complete a Statement of Dependents and Filing Status that establishes how much of your wages is exempt from collection by the IRS.
Wage garnishment is commonly used to ensure the payment of child support. The amount of your child support is exempt from garnishment and the IRS will release that amount on the wage levy if your claim is supported. If the child support becomes exempt, the child or children for whom the support is provided cannot also be listed in your Statements of Dependents.
Wage garnishment is a straightforward means to collect overdue tax liability—but the action has significant impacts on your financial picture. When you have questions about your tax liability, and options for addressing the debt, including an offer in compromise—speak with an experienced tax attorney for help.
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