IRS Wage Garnishments
A wage garnishment stays in effect until the tax is fully paid or until the IRS agrees to release the wage garnishment. IRS frequently uses wage garnishments to collect taxes owed through your employer. Once a wage garnishment is filed, the employer is required to collect a percentage of each paycheck. IRS wage garnishment requires that a large percentage of taxpayer's wages be turned over directly to the IRS.
Below are the sections from the IRS Internal Revenue Manual that deal with IRS levies and wage garnishments.126.96.36.199 (05-05-1998) Introduction
An individual's wages, salary, and other income can be levied. Wages and salary include payment for personal services in a work relationship.188.8.131.52 (05-05-1998) Employer Threatens to Fire Taxpayer Because of a Levy
- Sometimes an employer threatens to fire an employee to avoid handling a levy. This might be a violation of 15 USC 1674.
- If the employer fires the taxpayer because of this, the employer might be fined 00. There may also be a one year prison term.
- Refer the taxpayer to the Wage and Hour Division of the Department of Labor (DOL). DOL, not IRS, must decide if the employer violated the law.
- Unlike other levies, a levy on wages and salary has a continuous effect. It attaches future paychecks, until the levy is released. Wages and salary include fees, bonuses, and commissions. All other levies only attach property and rights to property that exist when the levy is served.
Example: If a bank account is levied, it only reaches money in the account when the levy is served. It does not affect money deposited later.
- When other income is levied, the levy only reaches money the taxpayer has a fixed and determinable right to. Also see 6.1, about retirement and benefit income.
Example: A levy is served to take an author's royalties. The author has a fixed and determinable right to royalties for books that have already been published. The levy reaches royalties for sales of those books in the future. The levy does not reach royalties for books that are written and published later. A new levy must be served to take those royalties.
- Also, see 6.11.1 when a levy is served on a non-liable spouse in a community property state.
- Part of the taxpayer's wages, salary, and other income is exempt from levy.
- The weekly exempt amount is:
- The total of the taxpayer's standard deduction and the amount deductible for exemptions on an income tax return for the year the levy is served.
- Then, this total is divided by 52.
- Income that is not paid weekly is prorated, so the same amount is exempt.
- In addition, the amount the taxpayer needs to pay court ordered child support is exempt. However, the order must be before the date of the levy.
Note:The support order can be from a court or administrative process under the laws and procedures of a state, territory or possession.
Reminder: If support is allowed, the same child can not be claimed as an exemption for figuring the exempt amount. See (2)a.
If the taxpayer has already shown proof of the required child support payment.
- Then write, "Under section 6334(a)(8) of the Internal Revenue Code, $ ____________________ is exempt from this levy." If the taxpayer shows proof of the child support after the levy is served. Then release enough of the levy, so the support can be paid.
- The taxpayer is not entitled to the support exemption, unless the support is being paid.
- Consider getting the taxpayer to have the payment withheld and sent directly to the person with custody.
- Instead, the taxpayer may make the payment through the Service, which will forward the payment. When there is no open assignment, have the payments sent through Case Processing Support. This may happen if the payments are being monitored in the service center.
- The Notice of Levy on Wages, Salary, and Other Income includes a Statement of Exemptions and Filing Status. The employer gives this to the taxpayer to complete and return within three days. If it is not received by then, the amount is figured as if the person is married filing separate with one exemption. The taxpayer can give the statement to the employer later to change the exempt amount.
Note: The employer needs to use this Statement rather than the employee's W-4. Taxpayers may claim different exemptions for withholding from those claimed on their return.
- Publication 1494 is sent with the levy to help figure the exempt amount.
- The taxpayer can give a new statement to the employer later to have the exempt amount computed again.
Example: The taxpayer's filing status or personal exemptions may change.
Example: There may be a change in exempt rates in a new year.
- The statement is completed under penalty of perjury. Generally, accept the information on the statement, unless there is reason to question it. If it is disallowed, notify the employer and the taxpayer in writing. The taxpayer can show evidence that the statement is right and ask for a manager's review.
- Some employers have a centralized payroll, so the payroll is not handled where most employees work.
- Consider mailing the statement of exemptions and filing status directly to the taxpayer. This avoids the delay of the employer remailing it.
- Send Part 1 of the levy and Notice 484 to the employer.
- Send the other parts of the levy and Notice 483 to the taxpayer.
- For joint liabilities, generally, levy the income of the spouse with the larger income.
- Levy both incomes only in flagrant cases of neglect or refusal to pay. Get manager's approval to do this. If taxpayers are separated, consider collecting from the second spouse before allowing the entire amount to be paid by levy on one person's income. IF the taxpayers are filing as married filing jointly & both taxpayers' incomes are levied. Then only one of them can claim the standard deduction for figuring the exempt amount. If the taxpayers are filing with any other filing status & both taxpayers' incomes are levied. Then both can claim the standard deductions for their filing status. If the taxpayers are remarried and filing as married filing jointly with the new spouses & both taxpayers' incomes are levied. Then both can claim the standard deductions for their filing status.
- When both spouses' incomes are levied, neither spouse can claim the other one as a personal exemption.
- Consider income from all sources when a taxpayer has more than one source. If the taxpayer is getting the exempt amount from one source of income that is levied & another source of income is levied, too. Then include Letter 1697(P) with the second levy to tell the employer not to allow any exempt amount. If the taxpayer has a source of income that is not levied & that source of income is at least as much as the exempt amount. Letter 1697(P) can be included with a levy on another source of income to tell the employer not to allow the exempt amount.
- See Exhibit 5.11.5-1, for a copy of Letter 1697(P).
- A levy legally attaches the taxpayer's gross income minus the exempt amount. However, see Policy P-5-29. By policy, a levy only attaches the taxpayer's usual take home pay.
Exception: Voluntary deductions can be disallowed, if they are so large they defeat the levy.
- Generally, allow the taxpayer to maintain deductions they already have when the levy is served. Notify the employer and the taxpayer of deductions that must stop while the levy is in effect. The taxpayer can ask for a manager's review of this.
Example: The taxpayer has a deduction used to buy shares in a mutual fund.
- Generally, employer's should not allow new voluntary deductions after receiving the levy. Exceptions can be allowed on a case by case basis, with the Service's approval.
Example: The taxpayer can not join the company insurance plan, until he is on the job six months. The levy is served before then. The amount of the premium is not unreasonable.
- The method that the taxpayer is paid is not relevant to take home pay. Direct deposit is not a payroll deduction.
- The taxpayer may leave a job and get severance pay. If severance pay is attributable to pay for a period of time. Then the exempt amount is based on that time period. If severance pay is not attributable to pay for a period of time. Then the amount exempt for one pay period is used.
Example: Severance pay is one week's pay for each year on the job. A taxpayer on the job for ten years gets ten weeks' severance pay. The taxpayer gets a paycheck every two weeks for ten weeks. Two weeks' exempt amount is subtracted from each check, just like the person was still working for ten weeks.
Example: The same facts as above, but the taxpayer gets the amount in one payment. The payment is attributable to ten weeks' pay. The employer is just making an "advance" payment, instead of writing a series of checks. The taxpayer gets ten weeks' exempt amount.
Example: A taxpayer gets a lump sum that is not attributable to a period of time. This could be, for example, an incentive payment to retire early. The exempt amount is based on the taxpayer's regular pay period. If there is no regular pay period, use one week's exempt amount. Similarly, if the taxpayer gets 00 for each year on the job, this is not attributable to pay periods. A person getting ,000 for being on the job ten years does NOT get ten years' exempt amount.
- This assumes the person is not already getting the exempt amount for a pay period at the same time. If both are being received, the taxpayer does not get the exempt amount twice.
Example: The taxpayer is paid for both the last pay period worked and severance on the last pay day. The taxpayer only gets the exempt amount once.
- Credit levy payments on the date they are received. Apply the money in the most advantageous way to the government. Generally, apply it to the oldest assessment, first. The taxpayer can not designate how to apply the money, because this is not a voluntary payment.
- Use designated payment code (DPC) 05 for levy payments. Use DPC 15 for other payments caused by a levy, if they are not levy proceeds.
Example: A wage levy prompts the taxpayer to pay the amount owed, to get the levy released. Code this payment with DPC 15.
- Payments for these levies may be small. Decide if the amount owed should be paid from the levy proceeds. When the payments are small compared to the amount owed, though, consider other enforced collection. If Payments are being monitored in CFf & one more payment is expected to pay off the amount owed. Then use Form 668-D to give the employer a payoff figure and release the levy after that is paid.
- If at least two payments are received & no additional collection is warranted. Then consider transferring the case to the service center for monitoring. Get management approval, first. See 2.4.9 and 184.108.40.206 of IRM 105.1 Collecting Contact Handbook.
Social Security Number:
Person to Contact:
Telephone Number: (Name and Address of Levy Source) (Salutation):
The taxpayer identified in the enclosed notice of levy is not entitled to the exemptions under section 6334(a)(9) of the Internal Revenue Code. Therefore, please disregard the instructions about the exemptions under that Code section on the back of Part 1 of the notice. Parts 4 and 5 of the notice have been removed, and the Table for figuring the amount exempt from levy is not enclosed.
This levy attaches the taxpayer's take-home pay. Please attach Part 3 to the check you send us. There is no need for your employee to complete the statement of exemptions on Part 3.
If you have any questions, please contact the person whose name and telephone number are shown above.
_________________ (Place for signature)
Notice of levy
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