Like most creditors, the Internal Revenue Service (IRS) has the power to garnish your wages if you owe a tax debt. Unlike most other creditors, however, the IRS can garnish your wages without first getting a judgment, and the amount it can take is usually more than what regular creditors can take. Luckily, the IRS has many options for you to take care of tax debts so that you can avoid wage garnishment.
(Learn how wage garnishments work.)
When tax season rolls around and you (or someone else) prepares your tax return, you will either owe the IRS more money or else get a refund.
If you owe money, there are several ways to pay. Ideally, you write a check to IRS for the full amount owed when you send in your return. However, many people do not have the ability to pay the full amount all at once and will need to explore additional opportunities to settle up with the IRS. These options include:
Filing for bankruptcy might offer you relief; however, it's important to understand that taxes are rarely discharged in a Chapter 7 case (although it can happen) and that you'll have to repay your entire tax debt in a Chapter 13 bankruptcy.
If you do nothing, then the IRS will initiate its collection process.
The IRS will not start garnishing your wages without giving you notice and an opportunity to make payment arrangements. But, unlike most other creditors, it does not have to first use you and get a judgment in order to start the garnishment process.
To start the process, the IRS must send you a written notice stating the amount you owe. The notice must itemize all of the charges (tax, penalties, and interest) and give you a date by which you must pay the balance in full.
If you don't comply with the demand for payment within the stated time, the IRS will then explore how it may most effectively force you to pay the tax. This may include seizing your assets, placing liens on your property, taking future refunds, and garnishing your wages.
State and federal law limit the amount that most creditors can take from your wages. (To learn about limits for judgment creditors and other creditors, see You Rights if Your Wages Are Garnished.)
The tax code, however, limits only what the IRS is required to leave. The IRS will take as much as it can and leave you with an amount that the tax code says is necessary for you to pay for basic living necessities. The amount that you can keep corresponds to the number of exemptions you claim for tax purposes. Refer to this IRS table to see how much of your wages are protected.
For example, a single person getting paid weekly and claiming five exemptions will only be allowed to keep $479.81. A married person filing a joint return, getting paid monthly, and claiming two exemptions will only be allowed to keep $1,625. Anything over and above these amounts gets garnished and sent to the IRS. So if the married person in our example makes $5,000 per month, he will only get to keep $1,625 and $3,37 will go to the IRS.
The IRS traditionally offers a wide array of options to deal with tax debt. It will usually only use wage garnishment as a last resort when you've ignored all other attempts to address the debt. (To learn more, see Options for Taxpayers to Deal With Back Taxes.)