If you owe a tax debt to the IRS, the IRS may set up a wage garnishment to recover the money you owe. If this happens, the IRS will automatically take a portion of your paycheck each pay period to make payments toward your debt. In some cases, the IRS might garnish as much as 70% of your income.
Wage garnishment can make it difficult to pay your other bills. Plus, the penalties and interest that will have accrued by the time that the IRS starts garnishing your wages can be immense. Avoiding wage garnishment, or stopping it once it starts, can help you stay financially stable.
On this page:
What can cause wage garnishment?
6 ways to stop wage garnishment
What can cause wage garnishment?
Before the IRS starts garnishing your wages, the following things need to happen:
You need to have an overdue tax bill. This includes both unfiled taxes and filed but unpaid taxes.
The IRS must have sent three specific communications to you
A notice and demand for payment.
A notice of intent to levy (garnish your wages)
A notice of your right to due process for collection actions
It can take as long as half a year from when you receive the first communication to the time that the IRS starts garnishing your wages. However, that’s no reason to wait to take action. It would be best if you acted sooner rather than later to make sure you can avoid wage garnishment.
6 ways to stop wage garnishment
There are a few ways that you can avoid or stop wage garnishments once it’s started. Most of them rely on working with the IRS to settle your back taxes, but you may also prevent wage garnishment if you prove that you can’t pay what you owe. The six ways are:
Pay off your tax debt in full
Set up a payment plan
Negotiate an Offer in Compromise
Declare hardship
Declare bankruptcy
Work with a tax professional
1. Pay off your tax debt in full
The first way to stop wage garnishment is to pay your tax debt in full. The IRS is only garnishing your wages so that it can get the money that you owe. If you send the IRS payment for your tax debt, the IRS won’t have any reason to garnish your wages.
You could also let the IRS continue to garnish your wages until it takes the full amount of tax debt that you owe. Once the IRS takes enough, it will stop. However, interest and penalties will continue to accrue while this occurs, so making a lump sum payment will be cheaper overall.
2. Set up a payment plan
The IRS is typically willing to work with taxpayers who owe a tax debt. If the reason that you’re not paying your tax bill is that you can’t afford to do so in one go, contact the IRS to set up a payment plan.
Depending on how much you owe, you can set up a short-term or a long-term payment plan for a small fee. These plans give you as long as seven years to repay your tax debt, turning a substantial one-time payment into a more manageable monthly payment.
As long as you stay up to date on your payments, you’ll have the freedom to manage your own money and make the payments rather than having the IRS garnish your wages.
3. Negotiate an Offer in Compromise
Like setting up a payment plan, an offer in compromise is a way of working with the IRS to help you proactively settle your tax debt.
Offers in compromise involve settling your debt for less than the full amount that you owe. For example, if you owe $10,000 in tax debt, you might convince the IRS to accept a payment of $7,000 and to forgive the remaining $3,000 balance.
To make an offer in compromise, you’ll submit a few forms to the IRS and pay a fee. You also have to include a down payment of at least 20% of the amount you’re offering to pay. So, if you offered to pay $7,000 to settle a $10,000 debt, you would need to include at least $1,400 with the application.
Remember that offers in compromise aren’t guaranteed to work. The IRS rejects almost two-thirds of applications. You need to prove that you’re not able to pay the debt in full to qualify.
4. Declare hardship
If wage garnishment is creating a financial hardship for you, you may be able to get the IRS to stop garnishing your wages temporarily. To declare a financial hardship, you’ll have to call the IRS on the phone.
The IRS defines financial hardship as being unable to “meet basic, reasonable living expenses.” When you contact the IRS to declare a financial hardship, you’ll need to prove the hardship, which means providing financial documents and information to show that you’re struggling to make ends meet.
It’s important to keep in mind that hardship doesn’t release you from your tax debt. You still have to pay the amount you owe, even if the IRS stops garnishing your wages. When you declare hardship, the IRS will want to work with you to set up a payment plan or another way to settle your balance.
5. Declare bankruptcy
Tax debt is like other forms of debt. If you’re unable to pay what you owe, you have the option to declare bankruptcy. Bankruptcy allows you to restructure or discharge your existing debts and start with a relatively clean financial slate.
Keep in mind that bankruptcies will appear on your credit reports and make it incredibly challenging to borrow money in the future. Still, for people in difficult financial situations, bankruptcy is a suitable last resort.
If you are filing or have filed for bankruptcy, you need to reach out to the IRS to inform the agency. To ensure the proceedings move forward smoothly and that your tax debt is discharged, the IRS recommends that you:
Fill all your tax returns for tax periods ending within four years of when you declare bankruptcy.
Continue to file and pay all current taxes as they come due. If you need an extension for current taxes, apply for one
If you follow these steps, you can get your tax debt discharged during bankruptcy proceedings, which will stop the wage garnishment.
6. Work with a tax professional
Tax professionals have experience when it comes to working with the IRS and resolving difficult tax situations. If the IRS is garnishing your wages, working with a tax professional may help you stop the garnishment.
Your tax professional will analyze your financial situation and tax debt to determine the best way to move forward. In many cases, this can be done through a free consultation. Depending on your situation’s specifics, the professional may suggest a payment plan, offer in compromise, or even declaring bankruptcy.
The professional will work with the IRS on your behalf, which can reduce the stress of dealing with tax debt and wage garnishment. Just keep in mind that these services come with a cost, so you’ll have to pay the tax professional for the assistance.
If you still need assistance with delinquent returns or have tax debt questions, please call Tony Silva at (619) 477-4357 for a free consultation.