IRS Wage Levies

IRS is the only creditor in America who can garnish wages without first getting a court order.

IRS frequently levies (garnishes) wages and seizes assets to satisfy or collect delinquent federal tax debts.  And wage levies are continuous levies, which means the employer must continually remit an employee’s net salary to IRS each time a pay period ends. Fortunately, under the law, the employee is entitled to keep a minimum amount of salary each time a wage levy is issued—that minimum amount is called the “exempt amount.” 

The 2015 “exempt amount” for a single taxpayer with one dependency exemption and a bi-weekly pay period is $396.15.  That amount is exempt from IRS’ levy and must be paid to the employee. The employer is obligated to pay any net salary above that to IRS.  The exempt amount is $638.46 for a married taxpayer with one dependency exemption and a bi-weekly pay period.  Exempt amounts are also published for weekly, monthly, and semi-monthly pay periods.

IRS can issue a wage levy only after three conditions have been fulfilled:

• IRS sent the taxpayer a “Notice and Demand for Payment”;
• The taxpayer neglected or refused to pay the tax;
• IRS issued a “Final Notice of Intent to Levy and Notice of Your Right to A Hearing” (levy notice) at least 30 days before the levy.

Sometimes, a levy can be released if it is shown that it is causing or may cause an “immediate economic hardship.”  In those cases, IRS will generally be willing to work with a client to establish a payment plan or take other steps to help pay off the outstanding tax liability.

Employers generally have at least one full pay period after receiving a wage levy notice (Form 668-W, Notice of Levy on Wages, Salary and Other Income) before they are required to send any funds from their employee’s wages.

Many options are available to contest IRS wage levies without a court hearing.  For example, an appeal can be made to an IRS manager, or a so-called “Collection Due Process” hearing can be requested with the IRS Office of Appeals. Such hearings must be timely filed within 30 days of the date on the levy notice. Some of the following issues can be appealed:

• The taxes were all paid before IRS issued the levy notice;
• IRS assessed the tax and sent the levy notice when the client was in bankruptcy, and subject to the automatic bankruptcy stay;
• IRS made a procedural error in the assessment;
• The time to collect the tax (called the collection statute of limitations) expired before IRS issued the levy notice;
• The client did not have an opportunity to dispute the assessed tax liability;
• The wage levy is causing (or will cause) an economic hardship;
• The client wishes to discuss other alternative payment options, or
• The client wishes to make an innocent spousal defense.

At the conclusion of the hearing, the IRS Office of Appeals will issue a formal “determination.”  The client will have 30 days after the determination date to bring a lawsuit to contest the determination, if necessary.

In most cases, it is best to settle the problem without litigation and the costs associated with litigation.  Clients are advised to contact a competent tax attorney familiar with IRS collection matters to resolve the problem and avoid litigation.

In April 2015, Congresswoman Bonnie Watson Coleman, D-N.J., introduced legislation to provide relief to low-income and economically vulnerable taxpayers who would otherwise be subject to IRS wage levies.  Individual taxpayers with incomes at less than 250 percent of the federal poverty rate would be eligible for relief.  Currently, that would mean a person with one in the household with $29,200 or less annual income; or, $39,825 or less of annual income for a person with two in the household, etc.

As of the date of this article, Congresswoman Coleman’s legislation was referred to the House Ways and Means Committee for analysis.