One of the most common IRS collection enforcement tools used when a taxpayer owes tax debt is the wage garnishment. A wage garnishment or “wage levy” seizes part of a taxpayer’s wages to pay their tax bill. The taxpayer’s employer is responsible for collecting and remitting the levied wages to the IRS.
A wage garnishment comes after the taxpayer have been given several notices to pay their back tax bill and either does not pay or does not enter into an IRS collection alternative on the unpaid balances. The IRS will issue Letter LT11 or L1058 to put the taxpayer on notice that the IRS will issue a wage garnishment or other type of levy if they do not pay or get into a collection agreement in the next 30 days.
The taxpayer can get the wage garnishment released if they pay the balance in full or if they enter into an agreement with the IRS (extension to pay, payment plan, or a hardship agreement). The taxpayer can also get the garnishment released if it is causing a financial hardship. Financial hardship is defined as the taxpayer cannot pay their basic necessary living expenses.
How a wage garnishment works
A wage garnishment starts with a taxpayer with an unpaid and unresolved tax bill. After a series of notices, the IRS sends a “Final Notice of Intent to Levy” that informs the taxpayer that they are subject to a garnishment or levy within 30 days if they do not pay in full or make arrangements with the IRS. At this point, the taxpayer needs to take action (if they have not already started). They need to consider other options (extensions to pay, payment plans, or hardship agreements) if they cannot pay.
If they do not make arrangements at the end of the 30 days, the IRS can send out a garnishment to their employer (IRS Form 668-W). The taxpayer will not receive the garnishment notice from the IRS. The employer will contact the employee and provide the employee a Statement of Dependents and Filing Status to complete. The Statement allows the employer to determine how much of the employee’s paycheck is exempt from levy (more dependents means less levied). The employee will have to return the Statement within 3 days to the employer. If the employee does not respond within 3 days, the employer is required to use “married filing separately” and “no dependents” in determining the amount to be levied (i.e., levies the maximum amount). The employer uses IRS Publication 1494 to compute the amount that is exempt from levy.
Wage garnishments are continuous until the tax balance has been paid in full. The employer garnishes and remits the garnished wages to the IRS until the amount is paid in full and/or the employer receives a Form 668-D, Release of Levy/Release of Property form Levy (i.e., “levy release”) from the IRS.
Removing a wage garnishment
There are two ways to remove or “release” a wage garnishment: pay the tax balance in full or enter into a collection agreement with the IRS. Most collection agreements allow the taxpayer to have their garnishment released. When obtaining the agreement, the taxpayer should ask the IRS to fax the “levy release” to their employer while they are on the phone with the IRS. The IRS will often fax the levy release if they have the employer’s Human Resources contact person, their phone, and their facsimile number. Once the levy release is received by the employer, the wage garnishment stops.