When it comes to state tax garnishment rules, they are effectively non-negotiable. If you have an eligible income, you have a tax liability, and if you are self-employed, you will have to report and file your taxes diligently and single-handedly. But certain circumstances – from an ineligible deduction on a return to a penalty for tardiness – can leave you with more taxes than you might have expected and an unexpected (and unwanted) tax bill.
The smaller the bill, the easier it is paid off. But as your tax debt grows, so does the affected tax authority’s interest in collecting on it. Failing to communicate an interest in repaying your debt may lead to collection actions on behalf of the local tax authority or federal government (the IRS). And when push comes to shove, the IRS and state tax authorities can turn to their last resort: the wage levy or wage garnishment.
What is Wage Garnishment?
Wage garnishment involves taking a portion of every paycheck you make to go towards paying off your debt. The only way your wages can be garnished is through your employer, so a self-employed debtor need not worry about them. In cases of self-employment, the state tax authorities will issue a levy on certain properties or bank accounts instead.
Once wage garnishment begins, it doesn’t end until the debt is paid or the garnishment is otherwise discharged. All debtors are entitled to enough of their earnings to cover their legal obligations, namely state, federal, and local taxes, their share of Social Security and Medicare, and State Unemployment Insurance tax. Any income past that, however, counts as disposable income – even when it’s needed for rent and food.
The government does have a limit on when wage garnishment can kick in for most wage garnishment orders, however. If a debtor’s weekly disposable income is less than 30 times the federal minimum wage, no garnishment can take place.
Anything above 30 times minimum wage may be garnished, up to a certain maximum percentage of weekly wages depending on the type of debt (up to 15 percent for student loans and taxes, but up to 50-60 percent for child support and alimony, for example).
When you’re dealing with back taxes, however, your situation might look a little different. The IRS, for example, will levy your wages based on how many dependents you have, as well as standard deductions.
State and federal tax debt, as well as wage garnishment applied as part of certain bankruptcy court orders, do not take these limitations into consideration.
That is wage garnishment in a gist. There are, of course, important details. First, your rights as a debtor:
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- You must be notified of the government’s intent to garnish. If it’s news to you on the day that your HR department notifies you of your garnished wages, you may be able to appeal the wage garnishment.
- You can otherwise dispute an order to garnish your wages if the information the government is acting on is incorrect.
- Certain benefits may be exempt for wage garnishment (veteran’s benefits, for example).
- You cannot be fired for having your wages garnished once. However, the more concurrent creditors you have, the less protection is afforded to you and your job.
- There are state-to-state differences on how wages are garnished, what limits apply, and what an employer can or cannot do in response to wage garnishment.
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The first thing you should do if you are about to face wage garnishment in your state is contact an attorney. A tax professional can help you navigate the issue and find the best solution for your circumstances.
For example, in the District of Columbia, wages cannot be garnished by creditors if the debtor’s weekly disposable income is less than 40 times the state minimum wage ($15 per hour). On the other hand, in Florida, if the debtor is the head of their family and makes less than $750 a week, their wages cannot be garnished either.
When Will State Tax Authorities Consider Garnishment?
Wage garnishment is a powerful collection action levied by the state when a taxpayer has failed to pay their debt and other collection actions have failed.
While it may take a while for the IRS to garnish your wages, state tax authorities tend to jump the gun more often. Take your state and federal tax debts very seriously – until paid, they typically don’t go away. It’s important to consult a professional on how to deal with your back taxes to the government before they become insurmountable.
What Does the State Consider Earnings?
The government doesn’t plan on only claiming one paycheck. The Consumer Credit Protection Act defines earnings as compensation paid or payable for personal services. This includes wages, salaries, bonuses, payments from pension or retirement, and bonuses. Examples include:
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- Commissions
- Performance bonuses
- Profit sharing
- Sign-on bonuses/referral bonuses
- Incentive payments
- Cash awards
- Merit increases
- Severance pay
- Termination pay
- Worker’s comp payments
- And more
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Whenever tips are involved, these count as wages if they exceed the tip credit claimed by the employer, if a tip credit exists. Otherwise, they do not.
What Can I Do about State Tax Garnishment Rules?
While limited, you do have options when it comes to state tax garnishment rules. You can file a dispute if the wage garnishment notice is inaccurate. You can seek the help of a tax attorney or find legal aid. You can contact the state tax authorities and work out a payment plan. Or, you can work your way through the garnishment.
What If You Don’t Owe Taxes?
Federal agencies and affiliated collection agencies under contract with them can still garnish your wages for other defaulted debts owed to the US government.
However, if you feel that your wages are being unfairly or incorrectly garnished, you need to get in touch with a tax professional in a timely manner and discuss your case.
Get Professional Help Today
Certain factors can greatly complicate your situation, like losing employment or trying to pay off another creditor while the government garnishes your wages. If you are in financial trouble and are considering bankruptcy or other options for your state tax debt, contact a local tax professional immediately. You may have more options than you would expect, depending on individual circumstances.
We at Rush Tax Resolution have multiple tax debt experts on hand ready to help you navigate your situation and find the best way forward through your state tax garnishment rules. Get in touch today.