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What is Wage Garnishment and What Can The IRS Take?

December 13, 2014

Wage garnishment allows the IRS to collect back taxes from individuals by taking money from his or her bank account or wages. If a taxpayer has the financial ability to pay and ignores or refuses to pay the tax debt, then the IRS can use garnishment to satisfy the tax debt; this can be partially or fully, depending upon the taxpayer’s financial condition.

Before using garnishment to satisfy a tax liability, the IRS sends multiple notices to the debtor. If no suitable arrangements are made to settle the debt, notices are ignored, or paying off the debt is avoided, then the IRS may resort to wage garnishment.

The IRS can seize and sell property such as a house, car, boat, etc. They can also levy property that is yours but is held by someone else such as your wages, bank and retirement accounts, Social Security benefits, rental income, dividends, etc.

Garnishment of a Bank Account

Under a bank levy, the IRS takes out funds from your bank to satisfy the tax debt. They inform the bank how much to remove from your account and to hold that amount for 21 days. This is a holding period during which any ownership issues can be resolved. After 21 days, the bank is required to transfer the amount owed to the IRS.

Garnishment of Wages

Under wage garnishment, the IRS tells your employer to transfer a partial amount or your full wages to the IRS each week until the tax debt is paid off. Employers usually have one full pay period after receiving Form 668-W Notice of Levy on Wage, Salary, and Other Income before they need to begin sending their employee’s wages to the IRS. Employers are legally bound to follow the IRS’s instructions. Wage garnishment can be deeply distressing for a taxpayer, as the IRS determines the amount that they garnish. If a garnishment leads to financial hardship, however, the IRS may stop the levy and consider postponing collection.

Process of Garnishment

The IRS can garnish only after:

They assessed the tax debt and sent you a Notice and Demand for Payment
You ignored or refused to pay your back taxes
You received the levy notice Final Notice of Intent to Levy and Notice of Your Right to A Hearing thirty days before the placement of the levy.

The IRS sends notices to the address that is registered with them. Even if you don’t receive notices because of an address change, the IRS will proceed with the collection actions. Therefore, if you move, make sure that you provide your new address to the IRS.