A Look At IRS Levy Limitations

Chances are you’ve heard horror stories about the IRS and other government agencies bleeding taxpayers dry in an attempt to collect past due taxes. While its true the IRS doesn’t need a court order to levy(garnish) your wages, the IRS does have a strict protocol for garnishing wages to satisfy a past due tax debt.

Allowable Take-Home Pay

The garnishment activities of most creditors (credit card companies, banks, mortgage companies, credit unions) are limited by each state’s garnishment laws. As a general rule, they can claim no more than 15 to 25 percent of your earnings.

The IRS, however, doesn’t determine by garnishment amount by a percentage. Instead they base it on the amount you are legally entitled to keep for yourself in order to continue to pay for basic needs such as housing, clothes and food.

The IRS utilitzies your net income (income after taxes and deductions) in determining how much of your wages will be garnished.

The IRS will also look at the number of dependents. They will send your employer a 668-W form, which you’ll fill out to claim you dependents. If your employer doesn’t give you this form, they are on the hook legally for your tax debt, plus any penalties for not giving you the form.

The number of dependents you claim on the 668-W form will be used in part to determine the garnishment amount.

Extenuating Circumstances

In some cases, the IRS won’t garnish your wages if you meet any of the following criteria:

  • 65 or older
  • Receiving income from unemployment insurance or worker’s comp.
  • Blind

Poverty Guidelines

If your income is at or below the poverty line for your household size, the IRS may be unable to claim a portion of your paycheck. By law, the IRS must leave you with enough income to pay for your most basic needs: food, rent/mortgage, utilities.

Your wages may not be garnished at all if your income is already too low to afford to pay for necessities. If they move to deduct anything at all from your paycheck, it will only be a smaller percentage that is more affordable for you.

If you are facing a wage levy, a qualified tax pro can help you understand your rights and make sure they are upheld as you go through the garnishment process. Your tax professional will negotiate with the IRS on your behalf, and can help you arrive at a more realistic solution to your back tax woes.

Facing wage garnishment from the IRS is stressful. By understanding the rules and limitations of IRS wage garnishment or levy, you will be in a better position to understand your rights and the legal limitations that prevent the IRS from taking a disproportionate amount from your paycheck.

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