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How to Stop IRS Wage Garnishment for Back Taxes

How to Stop IRS Wage Garnishment for Back Taxes

Getting your wages garnished by the IRS for back taxes can be a scary situation. One day you get your paycheck and notice that a big chunk of it is missing – the IRS took it! This can throw your finances into chaos if you were counting on that money to pay your bills. But don’t panic – there are ways to stop the garnishment and get your full paycheck back.

First off, why is the IRS garnishing your wages in the first place? This happens when you owe back taxes and haven’t set up a payment plan with the IRS. They will send you notices letting you know a garnishment is coming, but if you ignore the notices, eventually they will just start taking the money.

So how much can they take? Typically they will take about 25% of your disposable income, which is your total income minus deductions for federal, state, and local taxes. But if your tax debt is for restitution on a criminal case, they can take up to 100%! That’s right – your whole paycheck. Yikes!

Ok, let’s get into how you can stop the wage garnishment and start getting your full paychecks again…

1. Set Up an Installment Agreement

One of the easiest ways to stop a wage garnishment is to set up an installment agreement with the IRS. This allows you to pay off your tax debt in monthly payments over time. As long as you stick to the payment schedule, the IRS will stop garnishing your wages.

You can apply for an installment agreement yourself through the IRS Online Payment Agreement system. Or you can have a tax professional like a CPA or tax attorney set it up for you. They will make sure you get the most beneficial agreement possible.

The IRS will look at your income, expenses, and amount owed and work with you to come up with a monthly payment amount that works for your budget. Just be sure to make those payments on time every month or the wage garnishment could start back up!

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2. Apply for Currently Not Collectible Status

If you truly cannot afford to make payments on your tax debt, you may be able to get into “currently not collectible” status with the IRS. This means they agree that you are not in a financial position to make payments right now.

To qualify, you’ll need to fill out a detailed Form 433-F Collection Information Statement and provide documentation of your income, expenses, assets, and liabilities. The IRS will review it and make a determination if your financial situation warrants putting a hold on collections.

This status does not make the debt go away. Interest and penalties will continue growing during this time. But it will stop IRS collection actions like wage garnishments and bank levies. It’s a temporary fix but can provide some much-needed relief.

3. Request an Offer in Compromise

With an offer in compromise, you can settle your tax debt with the IRS for less than the full amount you owe. The IRS will consider accepting an offer for a few reasons:

  • Doubt as to liability – You have a legitimate reason to doubt you actually owe the amount.
  • Doubt as to collectibility – You don’t have the income, assets or means to pay the full debt.
  • Effective tax administration – There are exceptional circumstances causing the full payment to be unfair or inequitable.

You’ll need to fill out detailed financial information and provide documentation just like with currently not collectible status. The IRS will determine if you qualify for an offer and for how much they are willing to settle.

If your offer is accepted, you’ll have to pay that settlement amount according to the terms and timeline in your offer agreement. But it can be much less than the full tax debt. And the wage garnishment will stop as soon as your offer is accepted.

4. Prove Financial Hardship

If a wage garnishment is going to cause serious financial difficulty, you may be able to prove hardship and get the IRS to stop garnishing your wages. This is not an easy thing to do though.

You’ll need to provide very detailed information and documentation about your financial situation – income, expenses, assets, liabilities, etc. And you’ll have to explain specifically how the garnishment would impact your ability to pay necessary living expenses.

The IRS will review the information and make a determination if the garnishment should be stopped. Proving hardship can be difficult, so it’s best to work with a tax professional on this.

5. File Bankruptcy

Filing for bankruptcy can sometimes stop IRS wage garnishments, but not always. If you file Chapter 7 or Chapter 13 bankruptcy, collection actions like garnishments may be stopped temporarily while the bankruptcy is processed.

Whether the tax debt is ultimately discharged, or wiped away, will depend on the chapter you file, when the tax was assessed, and if it meets the qualifications for discharge in bankruptcy. So speak to a bankruptcy attorney to understand if this is a viable option in your situation.

6. Appeal the Tax Liability

If you believe the IRS tax assessment that led to the garnishment is inaccurate, you do have the right to appeal. You can file an appeal on your own or with help from a tax professional.

The appeals process can take some time and the wage garnishment will likely continue during the review. But if your appeal is successful and the tax liability is reduced or eliminated, then the garnishment should stop.

7. Pay Off the Tax Debt

The simplest way to stop IRS wage garnishment is to pay off the tax debt in full. Easier said than done, of course! But if you can come up with the money from savings, borrowing from retirement accounts, family loans, etc – paying off the balance will require the IRS to stop garnishing your wages.

You may also be able to stop the garnishment by paying down a large portion of the tax debt. If you can pay off at least 85% of what you owe, you may be able to get the IRS to stop garnishing your wages while you come up with the remaining balance.

Act Quickly to Stop Wage Garnishment

Dealing with IRS wage garnishment is stressful. But take a deep breath and know there are options. The fastest way to stop it is communicating with the IRS and setting up an installment agreement or other payment solution.

You may also qualify to put your account on hold with currently not collectible status. Or explore settling for less than you owe with an offer in compromise. Proving financial hardship can work but is tough.

Bankruptcy, appealing the liability, or paying off the debt are last resorts. But the main thing is acting quickly once you get those notices from the IRS. The sooner you can get a plan in place, the sooner you can get your full paycheck back!

Need help dealing with IRS wage garnishment? Contact a tax relief professional. They have experience navigating IRS processes and policies. They can walk you through all the options to find the best solution for your situation. Get your hard-earned money back in your own pocket where it belongs!

References

9 Ways to Stop an IRS Wage Garnishment – The W Tax Group
6 Ways to Stop IRS Wage Garnishment | LendEDU
What if a levy on my wages is causing a hardship? | Internal Revenue Service
How Do I Get a Levy Released? | Internal Revenue Service
How to Stop IRS Wage Garnishment – FindLaw
Can you stop an IRS wage garnishment? | 7 Methods How – TaxAudit

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