My clients frequently ask me how much the IRS can take from their paycheck if the IRS decides to issue a wage garnishment. This is a common question from someone who does not understand how the process works. The IRS does not take a percentage of one’s income; instead, the IRS is bound by a complex set of levy exemptions. The IRS takes all the income except the amount that is exempt from levy as shown on the tables in Publication 1494. It may be more appropriate to ask, “How much is the IRS required to leave for me?"
Another thing to keep in mind is that the IRS doesn’t actually take the wages/income in the normal sense of the word. The IRS sends a letter to the employer (Form 668-W) requiring the employer to hand over the non-exempt amount to the IRS. If the employer does not comply, then the employer could be held personally liable for the amount that would have been recovered by the levy plus a 50% penalty.
The amount of income that is exempt from levy depends primarily on the taxpayer’s filing status, the number of exemptions claimed, and the pay frequency. The filing status and number of exemptions are taken from Form 668-W (which is provided to the taxpayer upon receipt of the levy notice by the employer), it is not based on Form W-4. As an example, a single wage earner claiming one exemption who is paid once a month is allowed to take home $791.67 based on the 2011 rate. The IRS gets the rest regardless of the taxpayer’s actual earnings. That same wage earner, if he were paid weekly, would take home only $182.69. A married wage earner filing jointly and claiming two exemptions is allowed to take home $1,583.33 if paid monthly, and $365.38 if paid weekly.
Other factors that may come into play in determining the amount of a levy are the taxpayer’s age and ability to see: there are additional exempt amounts if the taxpayer is over age 65 and/or blind. The amount needed to pay a court ordered support obligation is also exempt from an IRS levy. Furthermore, some sources of income are completely exempt from levy such as Unemployment Benefits and Workers Compensation.
In cases where there are joint tax liabilities, the Internal Revenue Manual instruction is to “generally levy the income of the spouse with the larger income," and to “levy both incomes only in flagrant cases of neglect or refusal to pay." (IRM 184.108.40.206.3). However, a taxpayer with an individual liability and multiple sources of income will normally be allowed the exempt amount from only one source of income — 100% of the other income sources will be captured by the IRS (IRM 220.127.116.11.4).
Social Security benefits, Federal Old-Age, Survivors, and Disability Insurance Benefits are not subject to the above exemption scheme. Instead the IRS levies a straight 15% through the Federal Payment Levy Program regardless of how much would be left over for the taxpayer.