An IRS Wage Garnishment can be devastating. An individual’s wages, salary, and other income ( includes payment for personal services in a work relationship) can be levied. But, Economic hardship can stop an IRS Wage Garnishment.
IRC Section 6343(a)(1)(D) states that a levy shall be released if the Secretary has determined that “such levy is creating an economic hardship due to the financial condition of the taxpayer”. For example, the IRS wage garnishment is causing an economic hardship and preventing the taxpayer from paying necessary living expenses (rent, utilities, food, car payment, medical bills, etc…) for the taxpayer and family.
Unlike other levies, when the IRS levies your wages and salary, the levy is continuous. That means an IRS wage garnishment attaches to future payments, until the levy is released. Wages and salary include fees, bonuses, commissions, and similar type compensation. In comparison, a bank levy attaches only the monies in the account when the levy is served. It does not reach money deposited later.
A limited part of an individual taxpayer’s wages, salary, (including fees, bonuses, commissions and similar items) and other income, as well as retirement and benefit income, is exempt from levy. When the IRS wage garnishment is served on the employer, the employer is to provide the employee with a statement that the taxpayer is to complete and return within 3 days. If not provided, then the exempt amount will be figured as if the taxpayer is married filing separate with one exemption.
When there is a joint liability, the IRS will generally not levy on both incomes of husband and wife, except in flagrant cases of neglect or refusal to pay. If the taxpayers are separated, then the IRS will consider collecting from both spouse’s income by serving an IRS wage garnishment on the employer of each.
By IRS policy, a levy attaches only to the taxpayer’s usual take home pay. However, voluntary deductions can be disallowed. For example, if the taxpayer has deductions for a savings account or to buy shares in a mutual fund, the IRS will require that those deductions be stopped so that the funds will be applied to the levy.
The IRS wage garnishment is not an installment agreement. If you ignore the wage garnishment, other seizure actions may still take place.
ECONOMIC HARDSHIP CAN STOP WAGE GARNISHMENTS.
An IRS wage garnishment can be stopped by proving that you have an economic hardship.
IRM section 1.2.14.1.14 (Policy Statement 5-71) provides, in part: “A hardship exists if the levy action prevents the taxpayer from meeting necessary living expenses. In each case a determination must be made as to whether the levy would result in actual hardship, as distinguished from mere inconvenience to the taxpayer.”
Generally a detailed financial statement will be required. This process can become involved and complex due to various factors. For example:
Not preparing the financial statement forms correctly.
A picture is worth a thousand words, and the financial statement is the portrait of your economic situation, and your particular facts and circumstances. Most taxpayers simply do not fill these forms out properly because they may not recognize what factors are important to the IRS.
Statute of Limitations:
What if the Statute of Limitations is about to run out on the ability of the IRS to take collection actions (e.g., wage garnishment, bank levy, seizure, etc…) as to an older year? In these situations, the IRS may become increasingly aggressive by demanding payments which the taxpayer truly can’t pay without suffering economic hardship.
Failure to meet deadlines
Taxpayers having a history of failing to comply with previously agreed deadlines for submitting financial statement information. This can result in a more aggressive administrative posturing by the IRS.
IRS National and Local Living Expense “Standards”
The IRS may very well seek to impose its National and Local living expense standards when the facts and circumstances show that a deviation from such standards is necessary to avoid an actual hardship. There are ongoing “issues” (problems) with the IRS position in these matters. For example, The Taxpayer Advocate issued its 2013 Annual report To Congress – listing as Most Serious Problem #7, that the IRS Continues to Levy on Taxpayers it Acknowledges are in Economic Hardship and then Fails to Release the Levies. Then, as to your basic standard of living and determining “ability to pay”, there is a fundamental issue as to whether the IRS is following the law. And, If you owe back taxes, then there is no retirement savings provision for you. The Taxpayer Advocate disagrees with such position.
Unfiled tax returns – and undue hardship
Where there are unfiled returns, it is not only an abuse of discretion, but illegal for the IRS to proceed with an IRS levy where the levy is creating an economic hardship (see Vinatieri v. Commissioner of Internal Revenue, 133 T.C. 392 (2009). However, your mere assertion of such status is not going to win the day. It is important that taxpayers provide the required financial information, with supporting documentation, to substantiate economic hardship. Further, do not make frivolous arguments as they detract from the claim of economic hardship.
When you need assistance, call a tax lawyer with over 30 years of experience. 1-866-482-9767