How Much Can the IRS Garnish From My Wages?

If you have unresolved income tax issues with the IRS, you might be worried about IRS tax collection actions, such as wage garnishment. More specifically, you might be wondering how much the IRS can garnish from your wages if it decides to levy them. There’s good news and bad news to this inquiry.

The good news is that the IRS must exclude a minimum amount of your income from the levy so you have enough money left to pay for basic living expenses. The bad news is that as long as the IRS leaves the minimum amount, they can take the rest until your tax debt is paid, and unfortunately, the minimum amount is not a lot.

The goal of this blog post is to explain the IRS wage levy process. This includes how the IRS determines how much it can take from each paycheck, as well as what you can do to prevent or stop a wage levy. If you’d like to learn more about fighting an IRS wage levy, don’t hesitate to contact the licensed tax professionals of 20/20 Tax Resolution, either online or by calling 1-800-363-5054.

Key Takeaways

• Before garnishing your wages, the IRS will first assess a tax and send you a series of notices and letters about the outstanding tax balance.
• Wage garnishment process – If you don’t respond to the tax bill or subsequent notices, the IRS will send a Notice of Intent to Levy, followed by Form 668-W(ICS) or 668-W(ACS) to your employer.
• Wage garnishment rights – Your employer can’t fire you for a wage garnishment, as long as it’s your first one. Additionally, you can challenge the wage levy by filing an appeal.
• Stopping a wage levy – To stop an existing levy, you can pay off the tax debt, enter into an arrangement to pay off the tax debt over time, submit an OIC, request CNC status, or ask for a levy release due to economic hardship.

The Wage Garnishment Process

While the IRS doesn’t need a court order to garnish your wages to collect unpaid taxes, the IRS needs to follow certain steps before it takes money from your paycheck:

1. Complete a tax assessment: This is where the IRS determines you owe taxes, and the assessment usually occurs after the IRS reviews your income tax return.
2. Send a Notice and Demand for Payment: This is often the first tax bill the IRS sends to inform you about an outstanding tax balance you need to pay.
3. Send Reminder Notices or Letters: If you don’t pay your tax bill or make arrangements to resolve it, the IRS will send a series of reminder letters or notices, such as CP14, CP501, and CP503.
4. Send a Notice of Intent to Levy: If the reminder notices don’t work, the IRS will provide notice of its intent to levy your property. This commonly takes the form of CP90, CP504, Letter 1058, or LT11.
5. Notify Your Employer: The IRS informs your employer about the wage garnishment by sending either IRS Form 668-W(ICS) or 668-A(ACS), Notice of Levy on Wages, Salary, and Other Income. Your employer typically has at least one full pay period to comply with this wage garnishment request.

How Much the IRS Can Garnish From Each Paycheck

There’s no limit to how much the IRS can take, as long as the IRS leaves a minimum amount from each paycheck as required by law. This amount depends on several variables, such as the amount of the standard deduction, your filing status, and how many dependents you’re claiming on your tax returns.

IRS Publication 1494 explains how much the IRS must exempt from each paycheck. The IRS sends a copy of this publication to your employer, along with either Form 668-W(ICS) or 668-W(ACS).

If you’re not blind and under the age of 65, you’ll focus on the exemption amounts listed in Table 1 of Publication 1494. Currently, the IRS must leave at least $576.92 in each paycheck, assuming you get paid every two weeks, have zero dependents, and your filing status is Single. The exemption amount goes up the more dependents you claim, and if you’re filing a joint return with your spouse.

For instance, if you get paid every two weeks, have five dependents, and your filing status is Married Filing Jointly, then the IRS must leave you $2,134.60 from each paycheck. However, that’s generally not allotted to each spouse – if both you and your spouse are being garnished, that’s the total exempt amount.

These amounts will increase slightly if you’re at least 65 years old and/or blind. These additional exempt amounts are listed in Table 2 of Publication 1494.

One thing to remember is that as long as the IRS leaves you the exempt amount listed in Publication 1494, the IRS can take whatever it wants up to the total unpaid tax balance. That means that once you get the exempt amount in your pocket, the IRS can take everything else, including 100% of bonuses, commissions, and wages from second jobs.

A Hypothetical Wage Levy

Let’s say you file your income tax returns as Married Filing Jointly, claim two dependents, and have a weekly take-home pay (the portion of your paycheck that’s left after payroll taxes and deductions have already been taken out) of $5,000. Let’s also assume you owe the IRS $10,000 in back taxes.

The first paycheck you see that’s subject to the wage levy will leave you $773.08, with the IRS garnishing $4,226.92 and applying it to your tax bill. Then next week’s paycheck will be exactly the same, with you being left with $773.08 and the IRS taking another $4,226.92 to apply to your tax debt.

By your third weekly paycheck, you’ll receive $3,453.84 ($5,000.00 – $1,546.16). This is because your remaining tax balance was $1,546.16, so the IRS only needed to garnish this amount.

Note this is a very simple example to illustrate how the process works – most taxpayers will have much more than three rounds of paychecks affected by the garnishment.

Your Rights During the Wage Garnishment

The IRS enjoys greater authority to levy wages compared to most other creditors. Yet you, as the taxpayer, still enjoy some legal protections. In addition to the exempt amount discussed above, there are at least two other notable rights or privileges.

First, under the Consumer Credit Protection Act (CCPA), your employer can’t fire you because your wages are being garnished. However, this protection doesn’t apply to multiple garnishments. In other words, if your employer finds out that there’s a second creditor trying to garnish your wages, your employer could fire you for this second wage garnishment (assuming there was no state or local law offering additional wage garnishment protections).

Second, you have the right to appeal the IRS tax levy. Generally speaking, you’ll have 30 days from receiving the final notice of intent to levy to challenge the levy with either a Collection Due Process (CDP) hearing or through the Collection Appeals Program (CAP).

There are several advantages and disadvantages that come with each option, so if you’re seriously considering an appeal, it’s strongly recommend that you consult with a licensed tax professional for guidance.

Dealing With a Wage Levy

The best way to deal with wage garnishment is to prevent your tax situation from getting to the point where the IRS is trying to take a portion of your paycheck. This means not ignoring the letters or notices the IRS sends you about unpaid taxes.

Even if you can’t pay the full amount, you can still make arrangements with the IRS to deal with your tax debt. You can:

• pay it over time with a payment plan,
• reduce it with an offer in compromise (OIC), or
• Pause IRS collection actions by obtaining Currently Not Collectible (CNC) status.

There are also other options, such as a partial payment installment agreement or innocent spouse relief. Talk with a tax professional to learn about the best path forward in your situation.

What If the Wage Levy Is Already In Place?

If the IRS is already taking money from each paycheck, you can choose to pay off the entire tax debt, set up a payment plan (or installment agreement), or request an OIC.

One additional option is to show immediate economic hardship. The IRS will agree to release a wage levy if you can show it’s creating an immediate economic hardship on you.

An economic hardship exists if the wage levy stops you from meeting your basic living needs, such as rent, utilities, and food. You can contact the IRS by telephone to present your immediate economic hardship arguments, but you’ll want to have sufficient financial information available to explain to the IRS why the levy should be lifted.

Facing Wage Garnishment? 20/20 Tax Resolution Can Help

Discovering that the IRS is about to take your income isn’t an easy thing to deal with. In addition to the financial challenges it brings, knowing your boss or coworkers might learn about your financial struggles can add insult to injury.

As demoralizing as you might feel right now, don’t give up. There are ways to stop the garnishment of your wages and work yourself out of your tax challenge. The licensed tax pros at 20/20 Tax Resolution offer free consultations, so there’s no reason to wait to get started.

IRS Wage Garnishment FAQs

Can the IRS garnish my entire paycheck?

Not usually, as the IRS must leave a minimum amount that’s exempt from the levy. The exact amount that’s exempt varies based on multiple variables, but it typically adds up to about 25% to 50% of your disposable income.

One situation where your entire paycheck could be garnished is if you receive multiple paychecks. In that case, the amount the IRS allowed to garnish might be equal to or exceed the entirety of one paycheck.

Is a court order required to garnish my wages?

If the IRS wants to garnish your wages, a court order isn’t required. But if another creditor, such as a private company, wants to garnish your wages, then a court order is usually needed.

Will bankruptcy stop wage garnishment?

Filing for bankruptcy provides an automatic stay, which can temporarily halt all debt collection actions, including an IRS wage levy.

Is there a particular amount of money I have to owe before the IRS garnishes my wages?

If there is, it’s not public knowledge. That being said, the larger your tax debt and the more you earn, the greater the chance of a wage levy.

Can my employer fire me because my wages are being garnished by the IRS?

Maybe. The Consumer Credit Protection Act (CCPA) is a federal law that prevents an employer from firing an employee due to one wage garnishment. But if your employer receives notice that there’s a second creditor garnishing your wages, then your employer will likely have the right to fire you unless a state or local law says otherwise.

Sources

– https://www.irs.gov/businesses/small-businesses-self-employed/information-about-wage-levies

– https://www.irs.gov/newsroom/what-if-a-levy-on-my-wages-is-causing-a-hardship

– https://www.abi.org/feed-item/can-the-irs-ignore-the-bankruptcy-stay

– https://www.irs.gov/businesses/small-businesses-self-employed/how-do-i-get-a-levy-released

– https://www.irs.gov/businesses/small-businesses-self-employed/what-if-a-levy-is-causing-a-hardship