Frequently Asked Questions
Wage Garnishments
Wage garnishment, or imposing a levy, is another method the IRS often uses to collect any back taxes that you owe. The terms garnishment and levy mean the same thing when it comes to IRS seizures. Although your wages and bank accounts are usually the targets, it can also apply to the seizure of your home, equipment, furniture, vehicles or other possessions of value. A value of $3,390 is protected from the trade, but there is also a strange rule attached to this. If you own chickens, you can keep possessions to the value of $6,780. The IRS does need a court order to garnish assets and wages and you will receive a letter informing you that this is about to happen.
When the IRS places a levy on your bank account, the bank has a legal obligation to turn over all monies in your accounts. It doesn’t matter where the money came from or whether or not it is even your money. The fact that you have it in your bank account is all that is needed. Most people have direct deposit for their pensions, Social Security, child support, etc., but the IRS does not check the records to find out the source of the funds. Once the money is deposited in your account, it loses its identity.
If a wage garnishment or levy has been imposed on you, it will remain in place until you have paid the tax bill in full. Sometimes, when the amount reaches a manageable status, the IRS may release the levy. However, once the IRS has garnished the money in your bank account, it is not permitted to do so a second time. This means that you will only lose your savings once and after that any funds that come into the account are yours once again. The exception to this is the state of Massachusetts. Here, the funds that come into a bank account are garnished for a period of six months. Generally Social Security benefits are exempt from levies. Exceptions can be made if the government has to collect Federal taxes or delinquent child support payments.
If your salary is garnished, then the levy stays in force until you have the account paid off. There is a limit as to how much of your wages can be taken for tax payments. It is not allowed to exceed 25% of your weekly income. There are also exceptions to this rule. If you have a high-paying job and earn more than the federal minimum hourly wage, then the garnishment could be the amount by which your income exceeds thirty times that minimum hourly wage. The IRS can take everything you earn above $3.83 an hour, which wouldn’t leave you with very much money. Actually, the IRS takes the lesser amount. If you support your spouse and have dependent children, the levy cannot exceed 50% of your net income, but it you are single, that percentage rises to 60%.
The law protects you if your wages have been garnished. Your employer is not permitted to fire you because of the action and any employer that does so could be subject to penalties of up to $1,000 or have to serve a prison term of up to one year.
The threat of wage garnishment should be taken very seriously. When you receive an IRS Notice of Intent you need to contact people experienced in dealing with the IRS. Make sure that you do have all your paperwork in order and that if you have any unfilled tax returns you get them submitted as soon as possible. If you have any bank accounts in which the money is locked in for a period of time, once the funds are garnished, you will still have to pay the bank charges or penalties associated with taking out the funds earlier. Garnishing your wages could mean that you do not have enough money left to make your mortgage payments or pay your bills and have no other choice but to declare bankruptcy.
