When the IRS “garnishes” wages, it is using its statutory authority to levy on salary and wages. An IRS wage levy is not limited to a fixed percentage of pay. The employer pays the IRS the portion of each paycheck above an exempt amount set by law, and the levy continues until it is released. This article explains the notices that come first, how the exempt amount is figured, and the ways a wage levy can be released.
What a Wage Levy Is
Under IRC §6331(a), if a taxpayer neglects or refuses to pay a tax within 10 days after notice and demand, the IRS may collect it by levy. A levy on salary or wages is continuous: under §6331(e), it applies to wages from the date the levy is made until it is released.
The employer receives the levy on Form 668-W(ICS) or Form 668-W(c)(DO), along with instructions for figuring the amount that is exempt.
Notices That Come First
Before levying, the IRS generally must give written notice of its intent to levy at least 30 days in advance (IRC §6331(d)) and notice of the right to a Collection Due Process (CDP) hearing (IRC §6330). The IRS’s final notice, Notice LT11 or Letter 1058, serves this purpose.
A taxpayer who requests a CDP hearing within the 30-day period, using Form 12153, generally suspends levy action while the hearing and any appeal to the Tax Court are pending. If the 30-day period is missed, the taxpayer may request an “equivalent hearing” within one year after the date of the notice, but an equivalent hearing does not suspend collection, and its outcome generally cannot be appealed to the Tax Court.
How Much Is Exempt
The exempt amount is based on the taxpayer’s standard deduction and an additional amount for each dependent, spread over the pay period (IRC §6334(d)). IRS Publication 1494 contains the tables used to figure it by filing status, number of dependents, and pay frequency.
The employer gives the employee a Statement of Dependents and Filing Status to complete. The IRS says it should be completed and returned within three days. If it is not returned, Publication 1494 provides that the exempt amount is figured as if the taxpayer were married filing separately with zero dependents, which generally produces a smaller exemption.
Ways to Get a Wage Levy Released
IRC §6343(a)(1) requires the IRS to release a levy in several situations, including when:
The liability is satisfied or becomes unenforceable because the collection period has expired.
The taxpayer enters into an installment agreement under IRC §6159, unless the agreement provides otherwise.
The IRS determines that the levy is creating an economic hardship due to the taxpayer’s financial condition.
Release of the levy will facilitate collection of the liability.
Payment plans. The IRS generally will not take enforced collection action while a payment plan request is being considered, while a plan is in effect, for 30 days after a request is rejected or a plan is terminated, or while an appeal of a rejection or termination is pending. Individuals who owe $50,000 or less in assessed tax, penalties, and interest, and who are current with filing and payment requirements, may qualify for a Simple Payment Plan, which does not require a collection information statement.
Hardship. If a taxpayer cannot pay because of financial hardship, the IRS may place the account in Currently Not Collectible status, which suspends most collection activity. The debt is not forgiven, penalties and interest continue to accrue, and the IRS may review the taxpayer’s finances later. The IRS may ask for a collection information statement and supporting documents first.
Offer in compromise. No levy may be made while an offer in compromise is pending (IRC §6331(k)(1)), and the IRS states that it suspends other collection activities while it evaluates an offer. An offer is accepted generally only when it reflects the most the IRS can expect to collect within a reasonable period.
To discuss release, the IRS directs taxpayers to call the number shown on the levy notice.
Penalties and Interest Continue
Interest continues to accrue until the balance is paid. The failure-to-pay penalty increases from 0.5% to 1% per month if the tax is not paid within 10 days after a notice of intent to levy, and for an individual who filed on time, it drops to 0.25% per month while an approved payment plan is in effect.
Act on a final notice of intent to levy within 30 days. A timely CDP request generally stops levy action while it is pending and preserves the right to Tax Court review. After a levy begins, a payment plan, hardship status, or other resolution is the usual path to release.
The Bottom Line
An IRS wage levy can take a large share of each paycheck and does not end on its own. Returning the exemption statement promptly, responding to notices on time, and pursuing an appropriate collection alternative are the practical steps toward a release.
Facing an IRS Wage Levy?
Tax attorney Cassra Minai, Esq. can review your collection notices and options in a confidential consultation.