Most people do not realize their paycheck is at risk until the deductions begin.
When tax debt goes unresolved, the IRS has the authority to collect directly from your wages. It is a serious step, and one that often catches people off guard.
This guide breaks down what you need to know and what you can do:
- The process the IRS follows before initiating collection
- How wage garnishment works and how much they can take
- The steps you can take to stop or reverse the levy
Whether you have received a final notice or are already seeing smaller paychecks, it is not too late to act.
Tax Levy vs. Wage Garnishment
A tax levy is the IRS’s way of collecting unpaid taxes by seizing your property. That property can be money in your ban account, your car, or part of your paycheck. Once the IRS has tried to contact you, and you have not responded, they can legally step in and start collecting what you owe.
On the other hand, wage garnishment is just one type of tax levy. It means the IRS contacts your employer and tells them to withhold a portion of your pay. Instead of your full check going to you, some of it goes straight to the IRS. State governments can do this too, but the IRS has a bit more power. (Learn how to stop IRS wage garnishment.)
- Levy: The IRS can take many types of property, like your bank account, car, or paycheck. (Learn more about how a bank levy works and how to avoid it.)
Garnishment: Usually applies only to money, most commonly your wages. - Levy: The IRS can take your assets directly. A third party isn’t always needed.
Garnishment: Always involves a third party, like your employer or bank, who sends the money. - Levy: The IRS can freeze or take assets all at once.
Garnishment: A portion of your paycheck is taken regularly until the debt is fully paid.
How Much Can the IRS Take From Your Paycheck?
Once the IRS decides to levy your paycheck, they tell your employer to garnish your wages by sending them this IRS publication how much to pay you and how much to send directly to them. Employers do not have a choice, they must comply. States are allowed to use the same means to collect unpaid taxes owed to them as well.
There are several factors that determine how much of each paycheck you can keep.
These include:
- Your tax filing status
- How frequently you are paid
- How many dependents you claim
- Whether you are 65
- If you are blind
These factors affect how much you can exempt from garnishment. You can consult the table linked above for an estimate of how much of your paycheck you can keep.
There are several factors that determine how much of each paycheck you can keep. These include:
- Your tax filing status
- How frequently you are paid
- How many dependents you claim
- Whether you are 65
- If you are blind
These factors affect how much you can exempt from garnishment. You can consult the table linked above for an estimate of how much of your paycheck you can keep.
Bonuses and Commissions are not Protected
The IRS has the right to levy any bonus income you receive in addition to your regular paycheck. Unfortunately, because you were already paid your allowed amount in your regular paycheck, the IRS can keep your entire bonus check. Your employer will be forced to send the entire check directly to the IRS.
The IRS has the right to levy to collect back taxes under this section of the tax code.
Tax Levy Qualifications
Fortunately, most people can avoid a tax levy on their paycheck by taking action before things get to that point.
Remember that if you are ever receiving notices from the IRS, do not ignore them! Contact a tax attorney right away to stop things in their tracks.
In order for the IRS to have the legal right to garnish your wages, several things must first occur:
- The IRS determines that you owe unpaid taxes and sends you a notice demanding payment.
- You fail to respond to the notices from the IRS and fail to pay what you owe.
- The IRS must send you what is called a “Final Notice of Intent to Levy and Notice of Your Right to a Hearing.” They are required to send this at least 30 days before garnishing your wages.
Check more details about IRS certified letters.
CP14: This is your first bill. It tells you how much you owe.
CP504: A stronger warning. It says the IRS may take your property if you don’t pay.
LT11 or Letter 1058: Final notice. It says the IRS will take action if you do not respond in 30 days.
If you do not respond to the final notice, the IRS has the right to start garnishing your wages after 30 days. It is important to note that there are some exceptions.
The IRS is not subject to the rules listed above if they feel the collection of the taxes owed is in jeopardy.
If you are a federal contractor and owe taxes, or you were issued a Disqualified Employment Tax Levy, you will not be offered a hearing before the levy starts.
What Can the IRS Levy?
The IRS has a lot of power when it comes to what they can levy, but there are some restrictions.
They can take your salaries, commissions, wages, dividends, and payments on a promissory note held by someone else. They can also levy your bank account, any bank account you are a joint account holder on, retirement accounts, your house, your car, federal retirement income from the Office of Personnel Management, federal contractor payments, and other property.
The IRS cannot take certain types of property. These include:
- Social Security Disability Insurance,
- Unemployment benefits,
- Specific public assistance payments,
- Workers compensation benefits,
- Some annuity and pension payments,
- Court-ordered child support payments,
- Assistance from the Job Training Partnership Act.
They also cannot take your schoolbooks, clothing, or certain amounts of fuel, books, furniture, and tools for business, professions, or trades.
How Do I Stop an IRS Tax Levy on a Paycheck
The number one way to avoid a tax levy on your paycheck is to file your taxes correctly and make all payments on time. The goal is to owe nothing to the IRS.
If you are struggling to make your tax payments, a tax relief professional can help. There are many options available to get you out of tax debt including payment plans, settlements, penalty reductions, Offer in Compromise, etc.
The worst thing you can do is bury your head in the sand and ignore the IRS. If things have gone too far and the IRS is already garnishing your wages, it is not too late to stop the process.
You can contact the IRS to come to an agreement or resolution and stop having your wages garnished.
Contact Us Today
Ignoring a wage levy doesn’t make it go away. In fact, it makes things worse.
If you have a tax levy on your paycheck or the IRS is threatening you with one, you need a tax professional who specializes in tax debt relief on your side.
We are experts in helping our clients get out of tax debt.
Contact us today to get your tax problems solved.
Frequently Asked Questions
Not usually. They leave you with a small amount based on your filing status and dependents, but it might not be much.
It continues until the debt is paid off, or you set up another agreement with the IRS.
Yes. You can request a payment plan, an Offer in Compromise, or Currently Not Collectible status.
The levy itself will not appear on your credit report, but unpaid taxes might lead to a tax lien, which does.
Yes. The IRS will send the same notice to your new employer.
Yes, you can try, but your chances may be low. Tax professionals know the laws and how to deal with the IRS. They can get better results and save you a lot of stress. If your case is serious, working with a tax expert is usually the smarter move.
No. The IRS must first send you several notices, including a Final Notice of Intent to Levy, before they can garnish your wages.
The IRS can take money from your paycheck, bank accounts, tax refunds, and even seize property like cars or real estate in serious cases.
A tax levy stays in place until your debt is paid, a payment plan is set up, or the IRS decides to remove it.
Yes. You can stop or remove a levy by paying the tax, setting up a payment plan, proving hardship, or appealing it.
You can call the IRS directly or work with a tax relief professional, like us. Do you need urgent help? Contact us.
A tax lien is a legal claim to your property. A tax levy actually takes your money or property to pay your tax debt. Check what is the difference between IRS tax levy and tax lien.
