While I've been fortunate enough to never been in a bad enough financial situation to have wages garnished, I can imagine just how scary that could be, especially when you're short on cash to begin with. If you ever get into such a situation, hopefully this post by reader Melissa can help you not panic, and instead figure out what to do next.
Opening your paycheck to discover the bulk of it missing is a heart-sinking feeling, and that’s exactly what happens when your wages have been garnished by the IRS. If this is your current reality, you understand the stress and panic that can come with discovering your income has been slashed seemingly overnight. Millions of Americans have their wages garnished each year due to failure to pay off their tax debt, so you’re not alone.
Whether your failure to pay resulted from tax mistakes, or simple inability to pay all that you owed, it’s essential that you get yourself out of trouble with the IRS as soon as possible.
How You Got Here
If your wages have been garnished, then you’ve likely disregarded multiple warnings from the IRS. The government won’t seize your wages until you’ve ignored multiple paper notifications. Thirty days before grabbing your money from your bank account or paycheck, the IRS will send a Final Notice of Intent to Levy. If you’ve realized your wages have in fact been garnished, the first step you should take is to approach your employer and ask for a copy of this notice.
Don’t Worry About Losing Your Job
A wage garnishment is scary, and yes, it can be quite embarrassing. However, you don’t need to compound your stress by assuming that a wage garnishment will lose you your job. A federal act referred to as the Consumer Credit Protection Act is designed to protect individuals from a job dismissal, so your employer won’t have the grounds to fire you based on a wage levy alone.
How to Lessen the Levy
While you determine how best to get yourself out of your wage garnishment situation, do what you can to lessen the amount of money the IRS can take from you in the meantime. One of the easiest ways is to adjust the amount of dependents you have. You can easily go online and fill out forms that allow you to change the number of dependents under your care. The more dependents, the less of your wages the government will garnish as they see you support multiple people. If you’d like to talk to someone, call the number that’s listed on the Notice of Intent to Levy. The sooner you get in contact with the right people, the more willing the IRS will be to work with you and give you somewhat of a break.
An Estimated Disposable Income
As you begin to negotiate with the IRS, you’ll first be forced to come up with an estimate on your monthly disposable income. Prepare for this number to be a lot higher than you consider fair. The IRS determines your disposable income in a much different manner than you probably would, and the amount you’ll be required to pay is often much more than you could ever hope to sustain for more than a few months. If you can prove that you don’t have a viable monthly disposable income, rare cases have seen a wage levy dismissed, but this is highly irregular.
The Steps You Can Take
If you can demonstrate that you’ll never be able to pay off your debt fully, there are a few avenues through which you can try to settle with the government.
A Payment Plan: If you owe less than $50,000, you can ask the government to set you up with a payment plan to avoid compounding interest and building penalty fees. These can be hard to come by, but do happen.
An Offer in Compromise: An offer in compromise is a negotiation that forgives some of your debt; this helps you out by giving you less to pay, and this assures the IRS they’ll get what they can out of you. If you do decide to go this route, you’ll need help from a professional. The ins and outs of an offer in compromise are complicated. Use aid from a tax company like Community Tax to improve your chances.
Bankruptcy: No one wants to file for bankruptcy, but sometimes it’s simply the best option. If you and your tax advisor decide that your situation is bad enough that a bankruptcy is a viable choice, a wage levy will be released. However, bankruptcy comes with its fair share of undesirable consequences, so it should always be considered a last resort route.
Wage garnishments are terrifying, but you have options when it comes to resolving them. Keep these tips in mind and take steps to improve your credit score, budget better with PocketSmith, and come up with a new savings plan to ensure you never land in hot water with the IRS again.
See my disclaimer.