Negotiating with the IRS can be difficult, especially when you don’t know how to navigate the IRS’s ruleset. Explore these tips on how to stop wage garnishment.
Certain debts and obligations can warrant serious collection actions from creditors, particularly for tax debts, late child support payments, and late loan payments. When you owe federal taxes, for example, the IRS goes through a step-by-step collection process to coerce payment. Wage garnishment is one of the last steps for employed taxpayers and involves ordering their employer to withhold a portion of their wages every month until the full debt – including penalties and interest – is paid off.
What is Wage Garnishment?
When the IRS garnishes your wages, it’s because you owe a significant tax debt and haven’t properly addressed the IRS’s collection actions against you. The IRS’s collection process officially begins as soon as ten days after you have been notified of your tax balance and due taxes.
Late payment penalties (and late filing penalties, should you fail to file or claim an extension) begin thereafter and continue to accumulate on a monthly basis, alongside an annual adjusted interest rate (based on the federal short-term rate, plus three percentage points for Q1 2021).
If your tax debt is high enough, then the IRS can immediately file a federal tax lien against all of your property and assets. Ignoring the lien may lead to levies, including wage levies (also known as wage garnishment).
If you act soon enough, you can stop wage garnishment and halt levy actions. The IRS will usually give you multiple warnings in the form of various notices, followed finally by a Notice of Intent to Levy. This is often your last chance to contact the IRS and negotiate a way to avoid a levy and stop wage garnishment.
Aside from levying wages, the IRS can also levy assets, properties, and bank accounts. Self-employed taxpayers, for example, might see the IRS claim and empty a bank account to satisfy the debt.
Unlike wage garnishment which occurs whenever a wage is paid, levies on assets, accounts, and properties are individual events. If the sale of a property or claiming of an account more than satisfied your tax debt, the remained is returned to you. If it was not enough, then the IRS may issue another levy on a different asset or property.
How to Stop Wage Garnishment
There are multiple ways to stop the IRS from levying or garnishing wages, but they all boil down to the same thing: tackling the debt itself. This means either
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- Paying it off
- Coming to an agreement with the IRS, or
- Seeking for some form of debt forgiveness
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Under specific circumstances, you can also argue that the IRS must pause all collection efforts. Let’s look at each option.
Paying Off Your Debt Entirely
The most straightforward and least attractive option is to pay off your debt any way you can. This might involve selling property or negotiating with the IRS to discharge or subordinate their tax lien in order to let you seek financing.
Both of these options effectively create an exception for one property or creditor in the case of a federal tax lien, which usually prevents you from seeking credit, as the IRS’s claim supersedes that of any creditor under a tax lien.
Creating an IRS Tax Payment Plan
You don’t have to pay off your tax debt immediately. The IRS also offers multiple payment plans to let you pay off your debt in chunks. Interest will continue to accumulate during the payment period, but at a halved rate.
If you plan to pay off the entire debt within 120 days, you can qualify for a short-term payment plan. If you need more than 120 days, then the IRS will charge you in monthly installments through a long-term payment plan. Depending on your debt, these may be easier to manage financially than your ongoing or potential wage garnishment.
The setup fees for payment plans depend on whether you opt for short- or long-term, and whether you set the plan up via the Internet, or via phone/mail/appointment. Setting up online is often the cheapest and most convenient option.
Long-term payment plans are more expensive to set up, particularly if you opt out of the IRS’s automatic payment system (the Direct Debit Installment Agreement). Taxpayers who qualify as “low-income” (less than 250 percent of the federal poverty level) may also be eligible to have their setup fees waived or reimbursed.
Initiating a payment plan with the IRS can stop wage garnishment, as well as other levies. Sticking to the payment plan for at least four consecutive payments can make you eligible for a released lien as well, provided your total remaining tax debt is below $25,000, and you haven’t missed a payment in the past.
Negotiating an Offer in Compromise
Many taxpayers have fallen on hard times this year. Some aren’t able to meet the financial requirements for a long-term payment plan, let alone pay off the entire debt within a few lump sum deposits. That’s where an offer in compromise comes into play.
An offer in compromise is a payment plan wherein you tell the IRS what you are prepared to pay, and over what period. While it sounds too good to be true, it’s important to understand that the IRS typically rejects offers in compromise, unless they meet their standards and qualifications. This is where a tax professional can become critically important – they can help you negotiate with the IRS and draft an offer in compromise that is more likely to be accepted.
To understand how the IRS evaluates offers in compromise, it’s important to understand your own reasonable collection potential. This is calculated by estimating your own expendable income (what is left after taxes and basic cost of living) over a specific period, as well as net realizable equity. The IRS will comb your financial history to determine what you can afford to pay every month, and check if it matches up with your offer.
Arguing Financial Hardship
Wage levies are designed to leave you with an acceptable minimum monthly wage, and exemptions are raised for every dependent in your household. But if the IRS’s wage garnishment is affecting you heavily, to the point that you can argue financial hardship, you can talk to a tax professional about filing for Currently Not Collectible status.
This will halt all collection efforts until your financial situation changes. Eligibility for this status is determined periodically. It does not lift tax liens and does not halt interest.
Declaring Chapter 7 Bankruptcy
Most debts can be cleared by going through the bankruptcy process – but tax debts are special. Clearing a tax debt through bankruptcy is a lengthy process, and there are eligibility requirements before the IRS will drop your debt.
However, going through bankruptcy does pause most collection actions, including stopping wage garnishment. This doesn’t mean your tax debt is gone, but it does stop the IRS from claiming a portion of your wages, or anything else.
Always Seek Professional Tax Help
Negotiating with the IRS can be difficult, especially when you don’t know how to navigate the IRS’s ruleset for tax debts and collection actions. Experienced tax professionals can help you cut the chaff and figure out your best path towards living debt free. Contact our team of professionals today to stop your wage garnishment.
