One of the most useful tools in the IRS collections toolbox is the levy. A levy allows the IRS to seize valuable assets if you have tax debt (known as back-tax liability). The IRS takes these assets and applies them towards your tax debt. The IRS can use a levy to withdraw directly from your wages—a process known as wage garnishment. Wage garnishments can devastate your personal, professional, and financial situation. Though difficult to remove, wage garnishment levies can be released by the IRS if you successfully negotiate an alternative solution for paying off your tax debt.
The wage garnishment levy can only be used by the IRS after it has exhausted other options for collecting the taxes owed. The IRS must meet the following requirements before issuing a wage garnishment levy: (1) the IRS assessed the tax owed and sent a notice and demand for payment, (2) you neglected or refused to pay the tax, and (3) A Final Notice of Intent to Levy and Notice of Your Right to A Hearing were sent at least 30 days before the wage garnishment levy was imposed.
A wage garnishment, unlike other levies, has a continuous effect. It attaches to future paychecks until the wage garnishment is released. Fees, bonuses, and commissions are considered wages and salaries, in addition to your regular paycheck. Once in place, an IRS wage garnishment is very difficult to remove.
The upside is that, once levied, your IRS tax debt will be reduced. However, the obvious downside is that your paycheck will also be significantly reduced. This means you may not have the income to afford monthly mortgage payments and other bills. Missed payments may negatively affect your credit history. Outstanding checks may bounce, leading to bank fees. Also, the IRS is not limited to garnishing your wages. The IRS can levy your bank accounts too, which entails placing a hold on all your money so that you will be unable to withdraw it.
Releasing an IRS wage garnishment is difficult. The easiest way is to immediately pay off your tax debt in full. If that is not possible, you will need to pursue a different form of IRS tax debt resolution. Options include a monthly payment plan (called an Installment Agreement) and a protected tax-collection status (Currently Not Collectible status).
If you want to try either option, follow these steps to ensure the IRS does not force you into a form of resolution that you can't afford:
1. (Optional) Contact a tax attorney who specializes in IRS-enforced collection relief. A competent attorney will review your financial situation for free to determine how best to stop IRS collection efforts. If hired, he or she will also handle the rest of this process.
2. Immediately contact your employer's payroll administrator and ask to not have your pay deducted or any of your funds submitted to the IRS until you have had an opportunity to complete the exemption application. Get the payroll administrator's contact information (name, telephone number, fax number) at this time, too.
3. Contact the IRS employee responsible for issuing the wage garnishment and ask for confirmation that all necessary tax returns have been filed.
4. If returns are missing, complete them and file them at your local IRS office, and pay the balance due.
5. Retain a copy of the missing returns and gather your last 3 months' worth of paychecks and bank statements.
6. Complete IRS Form 433-F to determine if you have a positive or negative cash flow.
7. Contact the IRS employee responsible for issuing the wage garnishment and ask for it to be released.
Be prepared to give the IRS representative detailed financial information, contained on your completed IRS Form 433-F. The IRS representative will then complete a similar form to determine what type of resolution you qualify for. After an agreement has been reached, ask for a release of the wage garnishment. Give the name, phone number, and fax number of your payroll department administrator to the IRS representative, and ask for the release to be faxed to your payroll administrator immediately. Follow up with your employer's payroll administrator within 24 hours to ensure receipt of the release.
If you are not making progress, ask to speak with the IRS employee's immediate supervisor. If the supervisor is also unwilling to offer a full or partial release, it may be appropriate to apply for a Taxpayer Assistance Order by submitting Form 911 to the Taxpayer Advocate Office. When completing the form, make sure to clearly indicate the following: (1) the immediacy of the threat of adverse action, and (2) the irreparable injury or long-standing negative affect that will result. If the levy was issued in error and you are unable to get it released in time, you may complete IRS Form 8546 within 1 year of the levy to claim reimbursement.
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