This is the second post in a five part series on IRS levies. This post will cover wage levies; in the previous post we discussed personal bank levies and in the following weeks we will discuss personal asset seizures, business bank levies, and business asset seizures.
Many Americans live paycheck to paycheck to support their family and any reduction in that paycheck can have severe consequences. Unfortunately, one of the most common collect tools used by the IRS is a wage levy which instructs your employer to pay a portion of your paycheck to the IRS. If you have received a Notice of Wage Levy you first need to understand what the IRS can and cannot take from your paycheck.
What happens when the IRS issues a wage levy?
When the IRS issues a wage levy, they send a Notice of Wage Levy to you and your employer. The wage levy states the amount you owe to the IRS and requires your employer to pay a portion of your paycheck to the IRS based on IRS guidelines.
IRS guidelines instruct employers to pay the employee an amount equal to the total of the standard deduction and the amount deductible for exemptions on an income tax return for the year the levy is served. Then anything over this exempt amount must be turned over to the IRS up to the amount of the taxes listed on the levy notice. For example, if you are paid on a biweekly basis and you can claim two exemptions on your income tax return, your employer will be required to pay you $550 per paycheck and turn the rest over to the IRS.
Unlike a bank levy, wage levies are recurring and the levy will stay on your wages until you are granted a wage levy release or your IRS debt is paid in full. So, it is important to act quickly to reduce the number of paychecks that are effected once a wage levy is issued by the IRS. The good news is there are ways to minimize the effects of a wage levy.
Wage Levy Reduction or Release Based on Hardship
The IRS will reduce or release your wage levy if you can prove that the wage levy will create a financial hardship for you or your family if it remains in place. If you can prove that you would be unable to pay your household living expenses due to the wage levy, the IRS will usually issue a full or partial wage levy release. Proving hardship can be done by filing out a financial statement, form 433-A or 433-F, and gathering documents that prove your average monthly household income and expenses.
If your financial statement shows that your monthly expenses equal or exceed your monthly income, then you will have a good case for full release. If the IRS issues a full wage levy release, the wage levy will be completely removed and you will receive your full paycheck as normal.
If your financial statement shows that your monthly income exceeds your monthly expenses in an amount lower than the amount the IRS would receive under the full levy, the IRS may issue a partial wage levy release. If the IRS issues a partial wage levy release, the amount sent to the IRS will be capped at a designated dollar figure.
Wage Levy Release after Entering into a Payment Agreement
If you enter into a payment agreement with the IRS, the IRS will issue a full wage levy release and you can begin making voluntary payments under the agreement. You have several options when entering into a payment agreement with the IRS.
The first option is called a streamlined payment agreement. Qualifying for this type of agreement depends on a number of factors. Generally, you are eligible if:
- You owe $50,000 or less to the IRS;
- You offer to pay the balance off in monthly installments over 72 months; and
- You offer to make payments through direct debit withdrawal.
The second option is to enter into a payment agreement based on your ability to pay. Usually, taxpayers opt for this if they owe over $50,000 or cannot pay off their balance within 72 months. In this case, the IRS will want to see a financial statement listing all of your assets, income you receive from any source and a complete breakdown of your monthly living expenses.
Appeals Tools
If you have attempted to negotiate with the IRS agent or IRS division assigned to your case and they refuse to grant you a levy release, there are several options to appeal that decision.
- The Collection Appeals Process can be used for a quick review of a levy. This review is typically limited to whether the levy followed all technical guidelines when it was issued.
- A Collection Due Process Equivalency Hearing can be requested if you received a Final Notice of Intent to Levy within the last year. It can take a long time for this type of appeal to be considered. However, at the collection due process hearing, the appeals officer can consider all collection alternatives to the levy including installment agreements and currently not collectible status.
- You can request the assistance of the Taxpayer Advocacy Service if an IRS levy is creating hardship. If you prove to them that the wage levy will create a financial hardship, they can help you secure the release of the levy and, in extreme cases, they will issue a taxpayer assistance order telling the IRS to release the levy.
If your wages have been levied by the IRS, you must act quickly or the levy will continue to affect your wages each pay period. Working with an experienced tax attorney can help this process move as quickly and efficiently as possible.