State Tax Garnishment Rules to Know 

state tax garnishment rules

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:

      • 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.

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:

      • 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

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.

5 IRS Penalties to Know (and How to Avoid Them)

IRS Penalties - Rush Tax Resolution

IRS Penalties are one of the ways they try to urge taxpayers to consider their tax debt more seriously. Learn how to avoid them before it hurts you.

There are some penalties that are worse – and more surprising – than others. Knowing what IRS penalties they can send your way and how best to avoid them can keep a simple tax debt from becoming a crippling financial burden.

Sometimes, life can spin out of control or lead us into circumstances we never intended to face, and things like a late tax return or an overdue tax balance of a few thousand dollars seem far less important than much more pressing, immediate, and perhaps even existential worries.

But regardless of these circumstances, a debt is a debt, and the IRS commands an unparalleled arsenal for pursuing and punishing debtors. There are few ways to avoid the IRS – but you can negotiate with them and take measures to avoid unnecessary penalties and fees.


Failure to File a Tax Return

The first IRS penalty on the list is arguably the most pernicious, because it catches many indebted taxpayers off guard. If you owe a tax liability to the IRS, then you might feel that it’s pointless to send in a tax return. After all, if you can’t afford to pay your taxes, why go through the trouble of doing them at all?

Sadly, this kind of thinking can lead many taxpayers into an even greater debt trap. This is because the IRS requires all indebted taxpayers to file every late tax return for at least the last three, if not six years, when working with the IRS to eliminate a tax debt. This means that even if you cannot afford to pay your taxes, you are required by law to file your applicable tax returns and failing to do so means going back over the returns you missed and filing them after the fact if you want to have a chance at getting the IRS off your back, and fully paying off your debt.

For every month that your tax return is late, the IRS tacks on an additional 5 percent of your total tax debt, for a maximum of 25 percent after five months. This is a substantial penalty and can add a lot of volume to your debt for no reason other than the fact that you didn’t file the necessary paperwork.


Failure to Pay Outstanding Taxes

The second penalty we will discuss is the more obvious one – a penalty for failing to pay your tax balance. This is a much smaller penalty of only 0.5 percent every month, for a maximum of 25 percent after 50 months (over four years). This penalty can be halved (0.25 percent per month) if you enter a payment plan with the IRS, until your debt is fully paid.

It should be noted that this penalty does not stack with the failure to file penalty. This means that if you skip both filing this year and can’t pay your taxes, you will be charged 5 percent per month for the first five months, and then an additional 0.5 percent for each month until you enter into a payment plan with the IRS.


Failure to Pay Estimated Taxes

Some taxpayers are expected to pay estimated monthly or quarterly taxes, such as taxpayers who file as self-employed, or taxpayers who owe more than $1,000 in taxes per year after subtracting all applicable deductions and credits. Failure to make your estimated payments on time will lead to IRS penalties, based on what you owe, as well as monthly interest on your outstanding tax bill.


Sending a Failed Payment 

This one may be a bit rarer but can still occur. The IRS will penalize you for any payments that failed or were rejected, from bounced checks to rejected credit cards and bank accounts. For payments of more than $1,250, the IRS will charge you an additional 2 percent of the payment as a penalty for failure.


There is Interest on Tax Debt

In addition to penalties stacking up to 25 percent of the total tax debt (50 percent of the total tax debt for both failure to file and failure to pay after about four years), there is an interest rate of 3 percent plus the current federal short-term rate on any tax liabilities a taxpayer has. This is updated every quarter, and the information can be reviewed on the IRSs official website.


First Time Debtors Can Seek Relief

Interest and penalties can be completely wiped off of a taxpayer’s tax debt – provided this is the first time they have incurred a tax debt, or provided they were somehow unable to receive information about how their debt would grow due to not receiving notices from the IRS. These one-time forms of IRS penalties abatements are called the Penalty Relief Due to First Time Penalty Abatement, or Other Administrative Waiver. Some other requirements for having your first-time penalties waived include:

    • Being in the process of paying back your taxes, without any bounced payments or late payments.
    • All tax returns have been filed, including the late ones.


Consider Your Tax Refunds 

If you are eligible for some kind of tax refund or credit, the IRS will usually pull from said refund/credit to pay for your penalties. They will generally also subtract said refund/credit from your tax liability. They will then send you a notice for whatever balance remains (whether it is a smaller refund or a liability on your end).


Other IRS Penalties On Taxpayers

Penalties and interest are meant to act as timers to get taxpayers to take action against their debt by arranging to pay it sooner – but the IRS does have other tricks up its sleeve to coerce payment in cases where a taxpayer has a substantial debt to the government and isn’t paying. The two most significant tools in the IRS’s arsenal are the federal tax lien and the tax levy.

A tax lien is a legal claim on all the property and assets a taxpayer has. It does not constitute taking anything, but rather denotes that the IRS takes precedence over any lender or creditor. Also, should the taxpayer liquidate an asset, the IRS will be first in line to receive a payment.

A tax levy is a physical claim of assets, properties, accounts, and wages. The IRS can claim non-primary residences, non-essential vehicles, take money out of your bank account, or make employers withhold a portion of their employee’s wages, until the tax debt is paid.


How Rush Can Help

IRS Penalties, interest payments, and collection actions can be terrifying. But you are not defenseless. By coming up with a swift and actionable plan, you can negotiate payment with the IRS. You may also be able to reduce your IRS penalties and eliminate your liability as soon as possible. Even taxpayers in difficult financial situations can work with seasoned tax professionals to seek a reduced liability or a delay in collection actions until things improve.

You always have options. Seek out Rush Tax Resolution for more information.

Can I Apply For IRS Debt Forgiveness?

IRS Debt Forgiveness - Rush Tax Resolution

Is there a way to receive IRS debt forgiveness? Yes, but only partially.

True total tax debt forgiveness is only possible when a taxpayer’s account was erroneously charged more than it should have been (Doubt as to Liability), in which case the IRS may even issue a tax credit if it turns out you overpaid.

But in cases where your tax liability is not a mistake, there is no way to seek total forgiveness. The IRS will want to see some money, one way or another, and has the unique capacity to issue tax liens and levies that override other creditors’ claims, to represent the interests of the US government.

Nevertheless, working with a tax help and relief firm can greatly reduce your total tax liability, if you prove eligible for the IRS’s partial debt forgiveness program. There are a few other things to consider, and it’s always important to note that owing the IRS money doesn’t automatically spell doom. You have options that you can pursue to reduce your debt or avoid incurring heftier fees. However, time is of the essence.


When Does the IRS Forgive Tax Debt?

When the IRS finds that you owe taxes you have not paid, it sends you a notice that effectively serves as a bill and clarifies your due balance. If you fail to pay by the due date, the IRS will begin to levy failure-to-pay penalties. Your tax debt will also grow on a monthly basis as per a set interest rate.

The IRS will not forgive debt in its entirety. However, if it grows to an unreasonable level, you may have the option of filing for partial IRS debt forgiveness through an Offer in Compromise.

This is a suggestion made to the IRS to only pay as much as you can afford to, based on your financial information. You must make an offer of your own to begin the process, at which point the IRS will calculate whether your offer is truly all you can afford to pay without meeting undue financial hardship, or if it can manage to collect more. This is called your Reasonable Collection Potential, based on your monthly discretionary income for the next two years.

If the IRS finds that your offer generally corresponds with their findings, they may potentially accept your offer. If it doesn’t, they will deny it, and potentially suggest a change.

The longer you wait, the more these penalties will accumulate alongside the interest. Your tax debt continues to grow even while you’re paying it off, although the IRS generally halves continuing penalties and offers a reduced interest rate during payment plans.

Therefore, it’s in your best interest to seek payment options as soon as possible, including partial IRS debt forgiveness through an Offer in Compromise if you cannot otherwise fully pay your tax liability.


Eligibility for IRS Debt Forgiveness

The IRS offers an online pre-qualifier tool for taxpayers to see for themselves if they meet all the preliminary requirements needed to file for an Offer in Compromise, and they help taxpayers prepare their first offer.

This does not guarantee that your offer will be accepted but failing to account for each of the requirements does guarantee that it will be rejected. The most important requirement is to be completely up to date with your tax returns.

The IRS will not accept any offers from taxpayers who have not filed every tax return they are eligible for. If you pay your taxes through estimated tax payments, it’s also important to make sure that you continue to pay those, even if you can’t pay off your debt. The IRS will not accept an offer (including a regular payment plan for the full tax liability) if you aren’t making your estimated tax payments on time.

If you’ve missed this year’s tax return or failed to file one for any of the last few years, be sure to talk to a tax professional. They will be able to help you procure all the necessary paperwork to file your returns and move on to the next step.

A reputable tax professional will also help you prepare an Offer in Compromise that the IRS is less likely to reject. However, avoid working with tax professionals who say they can “guarantee” IRS debt forgiveness of any level. The truth is that there is no guarantee that the IRS will take your offer.


Filing as Currently Not Collectible 

Another option is to defer collection actions on your tax liability. To understand why this might help, it’s important to understand how the IRS pursues tax debt.

When a taxpayer’s liability grows to a certain point, the IRS may issue a Notice of Federal Tax Lien via a public registrar, effectively notifying any creditors that the US government now has a legal claim on everything you own, to protect their claim on your tax liability.

This doesn’t mean the government takes away your things yet, but it does mean that if you sell any assets or property, for example, the government is entitled to cover your debt with that money. It also means that most creditors won’t want to work with you, as you cannot secure a loan with anything you own.

If you further ignore the IRS, a tax lien may turn into a levy. At that point, the government claims a property and liquidates it, or empties a bank account. The IRS may also garnish your wages, taking a predetermined cut from every monthly paycheck (based on how many dependents you have) until your debt is covered.

These collection efforts can seriously impact someone undergoing financial hardship, especially when they’re unable to negotiate a payment plan with the IRS to halt them. Thus, the IRS offers the Currently Not Collectible status, which halts all collection efforts until you get back on your feet.

This does not keep your debt from growing. Your tax debt will continue to accumulate penalties and interest. However, the IRS can’t bother you about it. It will check in periodically to determine whether your situation has changed – if it hasn’t, no action will take place. If it has, the IRS may resume collection efforts.


IRS Tax Debt Can Expire

The IRS has ten years from the date of assessment (as noted on your Notice of Deficiency) to collect your debt before it expires. However, that ten-year period can be extended, and the clock stops whenever the IRS cannot legally take collection actions (including the entirety of the period during which you are Currently Not Collectible). This is a tolling period. Other examples of tolling periods include:

      • Being abroad for a substantial period.
      • Filing an Offer in Compromise.
      • Bankruptcy cases.
      • Litigation.

Should the Collection Statute Expiration Date (CSED) roll by, your debt to the IRS will be expired. However, it’s quite rare for that to happen, and the IRS will typically ramp up collection efforts the older a debt gets or may try to offer sweeter deals in order to make some kind of collection or enable an extension for further collection.


Why Work with a Professional?

Deferring the collection process and asking for partial IRS debt forgiveness can be a complicated process. By working through a professional, you have better chances of formulating an offer the IRS will accept, and thereby minimizing the penalties and fees accumulating on top of your initial tax debt.

If you believe that the IRS has falsely charged you with tax debt, a tax professional can help you pursue an appeal, and claim doubt as to your liability.

Contact Us Today for Tax Help - Rush Tax Resolution

What is the Taxpayer Bill of Rights (and How Does It Affect You)?

Taxpayer Bill of Rights - Rush Tax Resolution

The Taxpayer Bill of Rights provides representation to taxpayers – here is how it affects you.

The Taxpayer Bill of Rights is a recurring subject throughout American history, and most recently refers to the ten points outlined in a 2014 charter adopted by the IRS and proposed by former National Taxpayer Advocate Nina Olson.

This charter is the first time the IRS has itself addressed the issue and formally took measures to define certain taxpayer rights. The charter remains separate from the Taxpayer Bill of Rights introduced into Congress in 1988 (which constitutes an amendment to the Internal Revenue Code of 1986), and amended twice since, and separate yet from any state-specific Taxpayer Bills of Rights, of which only Colorado continues to have one.

Understanding the differences between these local, state, and federal laws and charters can be confusing and difficult. The most relevant is the charter implemented by the IRS itself, which aims to assure taxpayers that they have the right to a fair and just tax system, and the right to challenge the IRS’s position.

While taxes have been a constant throughout US history, they have never been very consistent – tax laws are amended and changed frequently, and the US tax system has seen several drastic overhauls in its 244-year history. When planning to navigate your rights as a taxpayer in your state and county, it’s a good idea to get in touch with a professional.

The Origins of the Taxpayer Bill of Rights

The Taxpayer Bill of Rights (TABOR) is a charter, an existing amendment to tax law, and the name for various initiatives launched by conservative and libertarian tax activists seeking to limit government power.

These initiatives can be traced to the 1980s, and the age of Reaganomics, with the main goal of proposing changes to existing tax laws on the state and/or federal level that would adjust tax rates to match inflation and population growth. On a state-level, such measures were only passed via referendum in Colorado, in 1992.

The TABOR embraced by Congress in 1988 and amended later refers to changes made explicitly to define and increase taxpayer rights when faced with liens, audits, and assessments. These changes require the IRS to prove its case against the taxpayer, for example, refund tax attorney’s fees under certain circumstances, and give taxpayers more time to cover late payments before incurring interest.

In 2014, the IRS began adopting a ten-point charter considered to be a reaffirmation of existing rights already written into the Internal Revenue Code. These act more as a show of commitment by the IRS to the people, or more clearly, serve to help taxpayers understand their existing rights when confronted with a payment demand, an audit, an assessment, or any other action by the IRS.


The IRS’s Taxpayer Bill of Rights 

The IRS’s charter is the work of the Taxpayer Advocate Service, an independent organization within the IRS meant to provide representation to taxpayers and headed by the National Taxpayer Advocate. The Taxpayer Bill of Rights names ten “fundamental rights”, including:


1. The Right to Be Informed

The IRS must provide clear explanations of the law and be transparent in how it conducts its business as the nation’s federal revenue service. This means providing easy access to every bit of information the public needs to be aware of through its publications, as well as individual notices and correspondence with taxpayers. Part of that right includes having ample time to receive and respond to these notices.


2. The Right to Quality Service

Quality service may sound ambiguous, but specifically refers to a commitment towards “prompt, courteous, and professional assistance”. Some examples of this include only contacting taxpayers between the hours of 8 a.m. and 9 p.m., as well as having IRS employees provide their name and ID when communicating with a taxpayer over the phone or in an interview. This includes trying to improve customer service if it becomes inadequate and offering a way for taxpayers to file complaints.


3. The Right to Pay No More than the Correct Amount of Tax

Taxpayers have a right to receive ample notice of any deficiency or adjustment on their tax account, propose a variety of payment plans to cover their liability, file for a tax refund if they have overpaid, and seek a number of other measures to argue their liability or seek help in paying it. Taxpayers also have the right to demand that an assessment be changed if it goes against tax law or was made in error.


4. The Right to Challenge the IRS’s Position and Be Heard

The Taxpayer Bill of Rights states that taxpayers can object to any formal action the IRS takes, and expect the IRS to respond in a timely manner. Taxpayers can challenge the IRS on their position and, if they have the evidence and documentation to prove it, argue against the IRS’s actions.


5. The Right to Appeal an IRS Decision in an Independent Forum

Coinciding with the previous right, taxpayers have the right to file an appeal, and argue their case in multiple forums, ranging from the IRS’s Independent Office of Appeals, to the US tax court.


6. The Right to Finality

The right to finality describes the right to knowing when any given deadline is in regards to a taxpayer’s tax payments, tax obligations, tax returns, tax audits, and so on. Taxpayers have the right to know when they are expected to provide any given information or payment and have the right to know the statutes of limitation on tax debts and audits.


7. The Right to Privacy

Taxpayers have the right to expect that the IRS will be “no more intrusive than necessary”. More concretely, this means that there are limits to the IRS’s collection powers, specifically insofar that they may cause personal hardship, or go beyond what can be considered reasonable collection.


8. The Right to Confidentiality

Taxpayers have the right to privacy with regards to the information the IRS collects, and can expect the IRS to act against employees and others who illegally disclose taxpayer information.


9. The Right to Retain Representation 

Taxpayers can hire any authorized representative they want and have the right to request competent representation from a Low Income Taxpayer Clinic if they qualify.


10. The Right to a Fair and Just Tax System 

Finally, the last fundamental right of a taxpayer is the right to a “fair and just tax system”, insofar that any given taxpayer can expect the US tax system to “consider the facts and circumstances”, and take into account individual factors that might affect a taxpayer’s ability to respond to notices, receive notices, and make payments.


Find Yourself Quality Representation 

When seeking to navigate the confusing provisions and rules of US tax law, it’s always best to side with a reliable and experienced tax professional.

Knowing your basic Taxpayer Bill of Rights and having quality representation when facing the IRS are two separate issues, and it’s best to be well-prepared on both fronts. Rush Tax can help you remove all ambiguity in tax-related matters and represent you and your interests as a taxpayer.



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