If you have received a notice from the IRS indicating a possible wage garnishment for a tax debt owed, then you should understand the options you have for preventing this action.
What is the IRS Garnishment Process?
The IRS can garnish your wages to pay taxes due for an outstanding tax debt from a prior tax return filed or for one that was not filed when it should have been by the due date or entirely. Simply put, the IRS can collect from your wages to file tax debts. The difference between the IRS wage garnishment process versus other creditors that may collect upon unpaid debts is that the IRS can garnish your wages to cover a tax debt owed without first obtaining a judgment. This can pose additional problems for anyone facing financial hardship since it can impact the amount of wages the IRS can garnish over other creditors.
How You are Notified
The IRS will notify you if they intend to collect tax liabilities due by garnishing your wages by mail. In fact, this is a requirement for the IRS to notify you of this. The good news with this is that it gives you time to contact a tax professional and explore your options to avoid your wages from being garnished by the IRS. For those with financial hardships or concerns about bankruptcy proceedings, seeking out the advice of a tax professional can help you best handle this situation and secure your financial future.
The notification will inform you of how much you owe (including the tax debt and any applicable penalties or interest owed) and the deadline for paying the total amount owed to the IRS. If you do not pay the tax liability by that date, then the IRS can take action to collect against your income.
The IRS can also go further if they decide it is necessary. Some other steps include:
- Seizing personal assets;
- Withholding tax returns; and
- Obtaining liens on your property.
Options to Pay After IRS Mails Notification
Once a taxpayer has received the notification from the IRS, then he/she can pay the tax debt and prevent the IRS from collecting from his or her wages.
If you are facing the possibility of having your wages garnished, reach out to a tax professional for advice based on your circumstances to determine the best solution for you. Possible solutions are:
- Setting up an installment payment plan;
- Disputing the amount owed if you believe it was an error
- Filing an IRS Form 656 for an Offer In Compromise with the IRS to reach a settlement agreement to for tax debts owed.
Installment Agreements to Pay Off Tax Liability in Monthly Payments
This flexible arrangement for paying off a tax debt is typically available to most taxpayers. Also, it prevents the IRS from taking further collection actions, such as calls and letters.
It may not be the best option for persons with large tax debts outstanding since interest will accrue during the term of the payment plan. This results in larger portions of the monthly payments going towards interest rather than the principal balance owed, which can make it time-consuming to get rid of tax debt.
Dispute the Tax Debt Owed
This is a good option for those that feel there was an error in the tax assessment. If you believe your tax liability was overstated or have since discovered new tax deductions you were entitled to that you did not file in your prior tax returns for the past three years, then filing an amended tax return is an option. It may help reduce the tax debt that the IRS can collect by lowering the tax liability owed.
Successfully filing these returns can then help prevent the amount the IRS may collect and avoid potential garnishing of wages. It is important to note that the statute of limitations is three years for filing an amended return. Also, there is an inherent risk that the IRS may determine additional taxes are owed.
Furthermore, additional taxes can be assessed during a tax examination or audit. This usually happens when a taxpayer is not able to provide supporting documentation for deductions or credits claimed. In some cases, the taxpayer simply does not know what to provide the IRS to prove the expenses claimed are legitimate. Again, a competent tax professional that specializes in IRS resolutions can help you with tax audits to minimize your exposures.
Offer In Compromise (OIC) to settle tax debt for less than you owe
The Offer In Compromise (“OIC”) option is a way for taxpayers to enter into a settlement agreement with the IRS that provides both parties to agree on a lower amount to settle the tax liability. Certain procedures must be followed for this option. Also, this option is not available to everyone.
Requirements for the Offer In Compromise
Some basic requirements for utilizing this form of stopping the IRS from garnishing your wages include;
- You have filed all legally required tax returns;
- A bill was mailed to you stating a tax debt or debts owed by you, that you are considering including in the OIC Form to the IRS; and
- Remit all estimated tax payments due for the current year. Note for this last item; it will differ if you are business owner versus an employee.
If you have not filed tax returns for previous years, the OIC can be rejected. Additionally, if the IRS finds additional taxes owed beyond what it initially informed you of during its letter about the potential garnishing of your wages, then those will now be added on to the total tax and subject to a possible garnishment by the IRS.
When OIC is Not an Option
If any of these situations apply to you, then you will need to settle them first before pursuing the OIC as an option for preventing the garnishing of wages;
- Bankruptcy proceedings;
- Open Audit investigation; or
- An innocent spouse claim
These are all situations that the IRS says should first be resolved before filing an OIC claim.
Other Important Options to Prevent a Garnishment on Your Wages by the IRS for Unpaid Taxes
Bankruptcy
Bankruptcy proceedings can sometimes reduce the tax liability owed, but it is not always an option as it can have negative impacts and other implications. Since this is a more involved option with procedural rules, timelines, and potential risks involved, it is a good idea to understand your other possibilities fully.
Also, consulting experienced tax professionals is wise when there are other factors involved in your situation, such as a bankruptcy or innocent spouse relief. This can help you ensure you pick the best option for you and to better understand any risks, costs, impacts, requirements, and deadlines involved in handling back taxes.
Innocent Spouse Relief
This is a specific type of situation that may be something to consider if you believe you meet the conditions for innocent spouse relief and have a tax debt due to a spouse including false information or errors on a joint tax return. There are also additional conditions to qualify.
Temporary Delay for Financial Hardship
The IRS may, at times, grant a Currently Not Collectible (CNC) status by delay the request for repaying a tax liability. This is allowed in circumstances where there is a financial hardship present. If you are struggling to make ends meet and can barely meet your basic needs, you should qualify for the CNC status. This option also does not stop the clock on IRS collection statue; therefore, the ten-year limit keeps counting when you have a financial hardship and have been granted a CNC status.
Do you live in the Houston area and need a tax professional for wage tax garnishment issues, you can get IRS back tax help by contacting our experienced tax resolution experts.
Key Takeaways/ Video Bullets
- If you received a notice from the IRS indicating a possible wage garnishment to collect on a tax debt, then you should explore one of these options:
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- Pursuing an installment payment plan;
- Disputing the tax debt owed if you believe a mistake was made;
- Filing the IRS Form 656 for an Offer to Compromise;
- Requesting a Currently Not Collectible status from the IRS is you are in financial hardship, and
- Paying the debt in full;
- It is crucial to take steps soon and consider what is best for you.
- Also, pay attention to penalties and interest that can accrue as you hold off on paying your taxes.
- Contacting a tax resolution specialist will help you understand the requirements to qualify for each option.