Once the IRS has hit you with a garnishment, you may feel powerless to do anything about it. However, options may be available. There are several ways to legally stop a garnishment and prevent the IRS's actions from severely impacting your ability to support yourself and your family.
Ways to Stop an IRS Wage Garnishment
For the benefit of its revenue officers and taxpayers, the IRS maintains an extensive manual detailing its collection practices, including how and when it uses levies to force a taxpayer to pay income taxes. Strategies for managing, avoiding or stopping a dreaded and expensive IRS wage garnishment include:
Prevent the Garnishment Before It Happens
An IRS wage garnishment should not come as a surprise. According to federal tax regulations, the IRS must send you notices of what you owe and of its intent to garnish your wages. You can often avoid a garnishment if you're willing to work out a payment arrangement with the IRS to clear your past due taxes. Every notice the IRS sends you has a contact number you can use to reach an IRS employee who can help you understand the collections process.
Enter Into an Installment Agreement
The IRS will often grant delinquent taxpayers an opportunity to pay their debt in installments. You can even apply online for an installment agreement. If you've already received notice of a garnishment, it's best to contact the IRS directly to discuss your situation with a real revenue agent who can expedite the process necessary to replace the garnishment with the installment agreement. Keep in mind that the IRS charges you a fee for the privilege or convenience of paying your taxes by in installments.
Ride Out the Garnishment
You can bite the bullet and allow the garnishment to proceed until your obligation is wiped out. Living with the garnishment coming out of your wages may be hard, but this could be the quickest route to financial freedom. If your circumstances allow, you may be able to get a second job to pay off the debt faster.
Appeal the Garnishment
When you get notice from the IRS or from your employer that the garnishment is about to go into effect, look to whether you might have grounds to appeal the levy. The appeal does not address the amount of the debt. In the IRS's view that you've had many opportunities to dispute your balance before you reach the levy stage. The appeal is designed to resolve issues around the process of garnishment. For instance, you might challenge whether the IRS gave you proper notice or whether the debt is too old to collect.
During the appeal, the IRS will suspend garnishment payments. If you lose the appeal, that will not be last you hear from the IRS. They'll be back.
Request Hardship Status
If paying the outstanding tax debt will cause you an economic hardship, you can ask the IRS to declare the tax debt as "uncollectible." To qualify for uncollectible status, you'll provide the IRS with detailed proof of living expenses on form 433-A. The IRS will compare that information against a set of national and local standards to determine the likelihood you'll be able to pay the debt you owe.
If you qualify, the IRS will file a lien to collect against your property (especially real estate) if you attempt to sell it, but the service will not otherwise attempt to collect from you for up to two years. After that time, the IRS will review your circumstances to determine if you still qualify. Although the IRS never considers a hardship or uncollectible status as permanent, if you continue to qualify, the ten-year statute of limitations may run out for collection of the tax debt.
Make an Offer in Compromise
The IRS Offer in Compromise (OIC) program allows you to settle debt for less than you owe. To qualify for an OIC, the IRS has to be satisfied that your circumstances meet one of these three conditions:
- Doubt as to liability: You can show that you may not owe the tax
- Doubt as to collectibility: You can show that the IRS will probably not be able to collect the tax in full
- Effective tax administration: You can show that paying the tax debt would create an economic hardship or that it would be unfair to make you pay it.
In considering an OIC, the IRS will look at your
- Ability to pay the debt
- Equity in your assets.
If the IRS accepts your offer, you can propose to pay the amount in a lump sum or through periodic payments.
File a Bankruptcy Case
When all else fails, you might try stepping outside the confines of the programs offered by the IRS to file a bankruptcy case. When you file a bankruptcy case, the IRS must stop all collection activity including a wage garnishment. Two types of bankruptcy may help you take control of your tax debt.
- Chapter 7, which is also called straight bankruptcy
- Chapter 13, which requires a three to five year repayment plan
Filing bankruptcy can be a powerful tool for you because you can use it to eliminate most personal income tax debts that are older than three years. If you choose a Chapter 13 case, you can use its repayment plan to manage any remaining tax debt you owe.
When you file a bankruptcy case, you can't choose just to treat your tax debt alone. Bankruptcy must include all of your debts. It can be a very effective debt management strategy, whether your primary concern is your tax debt or you have more extensive financial issues.
Tax Garnishment Assistance
You don't have to hire anyone to represent you when you deal with the IRS. However, to achieve the best outcome and overcome the intimidation factor of dealing with the IRS on your own, having a professional on your side can be beneficial. A qualified professional can help you choose the best course of action, make the most of your interactions with the IRS and, in the long run, could save you money.
There's no shortage of lawyers, accountants, or companies that will represent you when you need to resolve an old income tax debt. It's rarely a bad idea to consult with a qualified attorney or accountant who can advise you about your options, help you with forms and applications, or even argue your case to decision makers like revenue agents and judges.
All these helpers will charge fees for their services. In some cases, an attorney or an accountant will agree to meet with you once for free so that you can learn about what services are available, the relief you might qualify for and how much it will cost. Most professionals charge an hourly fee for their services, depending on how involved they expect the case will be. Sometimes, the professional will agree to take a flat fee or a percentage of what you save in the end.
Tax Settlement Companies
Working with a tax settlement company is another matter. The Federal Trade Commission cautions taxpayers who might consider paying a tax settlement company to help them work with the IRS. The companies often over-promise and under-deliver, don't do what they say they'll do, or charge unauthorized fees. As with any service provider you intend to hire, it pays to do your homework, and if possible find someone who has used the company or professional you're considering.
Help is Available
If you're facing an IRS garnishment, you don't have to feel powerless and frightened. Check out the many resources and professionals who can help find the most efficient and inexpensive route to freedom from your tax headaches.