How to Avoid IRS Collections and Wage Garnishment

How to Avoid IRS Collections and Wage Garnishment

Dealing with the IRS can be super stressful, I totally get it. I’ve helped lots of folks in your shoes, so I wanted to share some tips I’ve learned over the years about how to avoid IRS collections and wage garnishment. This stuff can get confusing real fast, but stick with me and hopefully this helps you out.

First Steps

If you get a letter from the IRS saying you owe money, don’t panic! Take a deep breath. The first thing you wanna do is confirm whether you actually owe what they say you owe. Mistakes happen, so verify the amount and what tax year it’s from. If it’s correct, then you need to respond to the letter ASAP and let them know you got it. Communication is key when dealing with the IRS.

Next, you’ll want to figure out why you owe money. Did you not file a return one year? Make a math error? Misreport something? Understanding the root cause will help you avoid similar issues going forward.

If the amount due is small, see if you can scrape together the cash to just pay it off. This will stop collections activities fast. If you can’t pay in full, still make a payment if possible – even a token amount shows good faith.

Payment Plans

If you can’t pay the full amount right now, setting up a payment plan is a good option. The IRS has two main payment plans:

• Short-term payment plan – Pay off balance in 120 days or less
• Long-term payment plan – Pay off balance over several years

The fees to set these up are pretty reasonable. A long-term plan has a setup fee of $225, and pays small monthly interest. Way better than getting your wages garnished!

To get a payment plan, you’ll need to fill out Form 9465 and submit it along with your first payment. The IRS will usually approve plans for people who’ve filed all returns and can pay within 6 years. Make sure your proposal is realistic based on your current financial situation.

Offers in Compromise

If a payment plan still won’t work for you, consider submitting an Offer in Compromise (OIC). This allows you to settle your tax debt for less than the full amount owed. It’s not easy to get approved, but can be a lifesaver for people in tough spots.

To qualify for an OIC, you’ll need to prove one of these to the IRS:

• You have no ability to repay the full amount
• Paying in full would create an economic hardship
• There are exceptional circumstances causing you to be unable to pay

You’ll have to provide detailed financial information like income, expenses, assets, and liabilities. The IRS will evaluate your overall financial situation to determine if an OIC makes sense.

Avoiding Wage Garnishment

Wage garnishment is no fun. This is when the IRS takes a chunk of your paycheck to cover taxes you owe. Here are some tips to avoid it:

• Act fast! Respond quickly to any IRS letters to stop collections until you can address the issue.
• Negotiate a payment plan or OIC. This pauses enforcement while your request is reviewed.
• File your tax returns. Unfiled returns make you a target for garnishment.
• Stay compliant going forward. Don’t let new tax debts accrue.
• Change jobs if notified. Garnishments are tied to employers.

If you do get hit with a wage garnishment, work on negotiating a solution with the IRS immediately. Leaving it in place will just create more financial hardship.

Stopping Wage Garnishment

There are options if the IRS is already garnishing your wages. It will take some work, but you can get it stopped by:

• Paying off the tax debt in full
• Entering into a payment agreement
• Submitting an OIC
• Proving financial hardship
• Filing for bankruptcy (last resort)

You’ll need to demonstrate to the IRS that the garnishment is causing undue hardship. Gather evidence of your income, bills, basic living expenses, and anything else showing that the garnishment is making it impossible to pay your necessary expenses.

While negotiating, make payments on your tax debt if possible. Even small amounts show you’re making an effort. You can also request a temporary delay in collections until your case is reviewed.