May 27, 2014

Fail to pay a regular debt, an your run-of-the-mill creditors will have to obtain a court order from a judge to collect their money directly from your wages, which could take months and cost hundreds if not thousands of dollars in legal fees. Not so with the IRS. The IRS is a super creditor, and one of its superpowers is that it doesn’t have to bother with court orders to garnish your wages.

When you owe taxes, the IRS sends a bill. Fail to pay it and they’ll send another bill, which will include any penalties and interest accrued since the previous bill. Insist in not paying and the IRS will start collection actions. These actions include garnishing tax refunds (another superpower only the IRS has), levying bank accounts, seizing houses, and/or garnishing wages. If you have to stiff a creditor, you may want to avoid doing it to the IRS.

So what should you do if the IRS garnishes your wages?

You Can Lawyer Up

If you don’t agree with the amount, collect any evidence that supports your claim, such as tax returns, cancelled checks, or other documents that show why the amount on the bill is wrong or has already been paid. Hire a lawyer. Those who can’t afford a lawyer should contact  the IRS Taxpayer Advocate Service or call your local Low Income Taxpayer Clinic.

Or Just Pay Up

If you agree with the amount the IRS claims you owe but can’t afford to pay it, pay as much as you can. Consider getting a loan, a cash advance or using a credit card to pay it in full. The combination of penalties and interest charged by the IRS can be much higher than the cost of a regular loan.

The first step is to contact the IRS and check whether you actually owe the tax.

Audit Reconsideration
For instance, it is possible you forgot or failed to respond to a previous IRS notice and the IRS may have assessed your tax liability based on incorrect assumptions. If so, request the IRS to reconsider the assessment.

Innocent Spouse Relief
The IRS may be charging you for taxes owed on your spouse’s income. Generally, spouses are responsible for the full amount owed on a joint tax return, but you may qualify for innocent spouse relief if the taxes are based on “mistakes” or “omissions” on your spouse’s income.

Identity Theft

If the deduction from your paycheck was the first you heard about your tax debt, call the IRS immediately. You could be the victim of identity theft. Call the number on the wage garnishment notice or 1-800-973-0424.

Collection Alternatives

If you agree with the amount owed but the wage garnishment will impose too much of a hardship, call the IRS and ask for a levy release. This won’t get rid of the debt, but it will give you some breathing time while the IRS assesses alternative payment methods.

The IRS offers three main alternatives to a wage garnishment:

Enter into a monthly installment agreementTaxpayers who owe $50,000 or less in taxes, can apply online to set up a payment agreement. How much you pay every month will depend on your income and living expenses. Paying a monthly installment through an employer comes with a one-time $120 fee; while using a direct debit agreement has a $52 fee.

Request an Offer in CompromiseThis is the most attractive option because it means you only pay cents on the dollar of your tax debt. However, the IRS only agrees to an offer in compromise in cases when a taxpayer is unlikely to be able to pay the full amount in a reasonable period. You have to be in pretty bad financial shape to qualify.

Qualify as “Currently not Collectible.” This option sounds better than it actually is. The IRS will temporarily ause the collection process on taxpayers who are currently unable to pay their debt but who the IRS considers are likely to be able to pay it in the future. Unfortunately, penalties and interest will continue to accrue on the debt, so this method is not a long-term solution.

Bankruptcy and Wage Garnishment

When it comes to getting rid of debt, bankruptcy is the nuclear option. In many cases bankruptcy wipes out debt and permanently stops the garnishments it triggered. Unfortunately, bankruptcy also has a terrible effect on your credit. In the case of back taxes though, bankruptcy only offers a temporary stay. Once the bankruptcy case is over, you will still owe the taxes. This is another of the IRS’s superpowers.

Another Garnishment Could Cost You Your Job

Besides the obvious financial hardship, an IRS wage garnishment could also jeopardize your job. Some employers consider a wage garnishment as a stain on their workers character and may rethink their eligibility for a position, particularly if they have oversight over money or other valuables. Executing wage garnishments also creates additional work and expense for employers.

The Consumer Credit Protection Act prohibits an employer from firing you because of wage garnishments on a single debt. If an employer does fire you because of a wage garnishment, she may have to pay a $1,000 fine, face up to one year of incarceration, or both.

However, the Act does not protect workers who have wage garnishments on two or more debts. So if you already have a wage garnishment with the IRS and you get hit with another wage garnishment, it could cost you your job.

Stop Garnishment – Talk to the IRS

Wage garnishments are usually reserved for taxpayers who have ignored a couple of overdue tax bills and the IRS’s Final Notice of Intent to Levy. In other words, you can usually stop a wage garnishment just by talking to the IRS and arranging for an alternative method of payment. Although you can deal with the IRS directly, you should talk to tax lawyer, CPA or enrolled agent whenever you have problems with the IRS. IRS procedures are purposefully complex, so contact Optima Tax Relief to work through the jargon for you.

The IRS doesn’t have your best interests at heart. Its purpose is to collect as much revenue as fast as it’s legally possible. That may be great for the nation as a whole but not so great for your bank account.