What is a Wage Levy or Garnishment and How Does It Work?
An IRS wage levy or garnishment is a directive sent to your employer that legally obligates the employer to both withhold a portion of your wages and pay the withheld portion over to the IRS. After making that deduction, which can be as high as 70% of your wages, the employer will send you the pittance that remains.
Unless you act to stop it, the wage levy or garnishment will continue until such time as all past due taxes, penalties and interest are paid in full, or until you leave your employment with that employer. Making a side deal with your employer, to be paid under the table, is not a viable alternative. Doing so is a felony, subjecting both you and your employer to criminal prosecution.
Can I Stop the Wage Levy or Garnishment Due to Personal Financial Hardship?
Yes, you can stop a wage levy or garnishment if it in fact is causing you and/or your business immediate financial hardship.
Here’s what Internal Revenue Code Policy Statement 5-71 expressly provides:
“If there are limited assets or income but it is determined that levy action would create a hardship, the liability may be reported as currently not collectible. A hardship exists if the levy action prevents the taxpayer from meeting necessary living expenses. In each case a determination must be made as to whether the levy would result in actual hardship, as distinguished from mere inconvenience to the taxpayer. If, after taking all steps in the collection process, it is determined that an account receivable is currently not collectible, it should be so reported in order to remove it from active inventory.”
What Constitutes Financial Hardship?
For individuals, a financial hardship exists if the levy or garnishment on your wages renders you and your family unable to meet basic living expenses that, in your circumstances, are reasonable. Reasonable expenses are those that a normal individual or family in your situation would expect to have. A luxury boat or car payment will not qualify as such an expense. Moreover, a financial hardship does not exist if you can barely pay your bills. The rule of thumb is that you must have zero cash left after paying basic, reasonable living expenses. Though the IRS will allow you to make some adjustments, if you cannot do so, bankruptcy may be a preferred option.
How Do I Request a Financial Hardship Exemption?
Often the best and quickest approach to requesting a financial hardship exemption, and stopping the levy or garnishment immediately, is simple: Take the old-school approach by picking up the phone and calling the IRS.gov. The phone number to call is listed on the levy notice or letters preceding it, and of course is listed online at The IRS office is not open all week, so you must call during working hours, Monday to Friday, 8 a.m. to 8 p.m. your local time.
What Will I Need to Provide the IRS to Prove Hardship?
Unfortunately, the IRS will not just take your word that you the wage levy or garnishment is causing you instant hardship. You can’t get emotional and tell them rent is due to tomorrow and by the urgency in your voice win them over. As expected, the process is more formal, and you will be required to provide accurate financial information upon request.
If you are planning to call, which is what most people do, this means you need to be ready with your relevant financial information. A worksheet with all your monthly income and expenses can be a very helpful tool, time allowing. Certainly a notice to pay or quit from you landlord will be compelling, as will utility bills or notices that show your water or power is about to be turned off, evidence that you care for children, the elderly or disabled individuals. And of course, be ready with written proof that can be scanned and emailed or faxed as needed.
On top of this, the IRS will require full financial disclosure. This includes, not just income and living expenses, but also assets and liabilities. If you have a valuable piece of land that you don’t want to sell because the market is low, it does not matter that wage garnishment would otherwise cause you hardship. In that case, absent an agreement, the IRS will levy on the land or require you to sell it and pay off your tax bill.
How Quickly Can I Get the Wage Levy or Garnishment Lifted?
This can happen immediately upon proving hardship, the very afternoon of your call or the next day. In addition to having your financial information handy, it is thus also wise to have all contact info for your employer, especially the fax number, so the IRS can contact the employer without delay.
Am I Scot-Free Once the Wage Garnishment or Levy Is Lifted Due to Hardship?
Unfortunately not – with one qualified exception. Generally, hardship only provides a temporary reprieve from IRS collection activity and future wage garnishment. You will still be required to pay the tax debt.
However, given your hardship, the IRS will usually work with you to come up with a realistic payment plan. This may or may not include a reduction in the amount owed, the penalties owed or the interest owed. If an agreement cannot be reached, the IRS will require you to resubmit proof of hardship after a certain passage of time. If hardship can no longer be shown, then at that time either a payment arrangement must be reached or collection activity will start back up.
The qualified except occurs if the hardship continues long enough to make your tax debt uncollectible, for the IRS only has 10 years to collect.
No matter what route you take, the matter of proving hardship can be a tricky one, and the strategies available beyond the everyday grasp of a lay person. In this situation, it is always wise to consult a qualified CPA, tax attorney, bankruptcy specialist or other tax professional.
References:
Attorney: http://howardlevyirslawyer.com/2009/01/09/is-there-such-a-thing-as-a-hardship-status-with-the-irs/
Business hardship: https://www.irs.gov/businesses/small-businesses-self-employed/what-if-a-levy-is-causing-a-hardship
IRS collection process: https://www.irs.gov/pub/irs-pdf/p594.pdf
DIY: http://www.doityourself.com/stry/stop-irs-wage-garnishment#b
Hardship Letters: http://budgeting.thenest.com/write-hardship-letter-stop-garnishment-22813.html
