Can the IRS Take All of Your Wages? Wage Garnishment Explained

Summary

The IRS can garnish wages to collect past-due taxes if taxpayers fail to pay or make payment arrangements. The amount of garnishment depends on factors such as wages, pay cycle, tax filing status, and dependents. The IRS follows specific rules, allowing them to garnish a substantial portion of a paycheck. Wage garnishment is a common IRS levy to ensure consistent progress in tax debt repayment. To prevent wage garnishment, taxpayers can explore payment options like installment agreements, partial payment installment agreements, offers in compromise, or currently not collectible status.

If facing wage garnishment, taxpayers have rights, including receiving a 30-day notice and the ability to request a Collection Due Process hearing. Negotiating alternatives to wage garnishment is possible, and taxpayers should seek professional advice to determine the best option based on their financial situation. Compliance with tax obligations is crucial to avoid future wage garnishment and maintain payment arrangements.

How Much Can the IRS Garnish From Your Wages? Can They Take It All?

The IRS can take a variety of steps to collect past-due taxes when taxpayers do not pay in full or make other payment arrangements. One of those options—and perhaps one of the most feared—is wage garnishment.

If the IRS garnishes your wages, the agency can take everything over a relatively small exempt amount. The exact amount of the garnishment depends on your wages, pay cycle, tax filing status, and number of dependents.

When the IRS begins garnishing your wages, they are permitted to continue doing so until your tax debt is paid in full. If you’re facing the threat of wage garnishment, it’s important to understand your options, accurately calculate how much you could lose to garnishment, and talk to a tax attorney about your next steps.

Conditions of Wage Garnishment

Wage garnishment is a type of levy. When the IRS goes through the proper channels by notifying taxpayers of their tax debt and their obligation to pay, they may levy a taxpayer’s wages and other assets if they fail to pay. However, they do have to go through the proper channels—in the vast majority of cases, they cannot just start garnishing your wages without any notice.

First, you’ll likely receive CP14, your first notice of your past-due taxes and a reminder to pay. About five weeks after you receive that notice, the IRS will send out CP501, your first official reminder that you still have unpaid taxes. If you do not respond or pay, watch out for CP503 about five weeks later. This is your second reminder regarding your unpaid taxes, with an updated amount covering interest and penalties.

The final reminder is CP504, a Notice of Intent to Levy. This letter outlines what their next steps are and how you can avoid a levy. Finally, you’ll receive Letter 1058 or LT11. This letter gives you 30 days to resolve your tax debt or request a Collection Due Process (CDP) hearing before the IRS moves forward with wage garnishment.

Each of these notices has a 30-day deadline, so from your first notice until the garnishment order, you have several months to explore different ways to pay off your tax debt.

When Does the IRS Decide to Garnish Wages?

Wage garnishment is a fairly common form of levy for the IRS. First, it ensures that consistent progress is made on your tax debt every two weeks to one month, depending on your pay schedule. Second, the IRS has the legal right to take a substantial chunk of your paycheck, which may result in your tax debt being paid down very quickly. Finally, if a taxpayer has consistently ignored all correspondence from the IRS, wage garnishment is certain to catch their attention and result in efforts to pay down the debt.

Wage Garnishment Calculations

If you’ve ever had your wages garnished for other forms of debt, you may be familiar with percentage limits and other calculations that keep creditors from clearing out debtors’ bank accounts. However, the IRS follows an entirely separate set of rules—and those rules favor them, not taxpayers. While the IRS cannot garnish your entire paycheck, they can take a substantial amount.

Percentage Limits and Rules

Each state has different limits regarding how much private creditors can garnish. For example, in New York, creditors can garnish either 10% of a debtor’s gross wages or 25% of their disposable income—whichever is lower. This leaves employees with a substantial amount of money each pay period to continue meeting their other financial obligations.

The IRS’s guidelines are entirely different. To start, the IRS isn’t limited to a specific percentage of a taxpayer’s income. Instead, they determine how much a taxpayer can keep of each paycheck—and then they are legally permitted to garnish the rest. The amount that is exempt from IRS garnishment depends on your filing status, how often you get paid, and how many dependents you have. In general, those who are married filing jointly get to keep the most, followed by those filing head of household, and those filing single or married filing single.

This, of course, applies to your regular hourly income or salary. However, it can also be used to seize any extra money you make. If you bring in a Christmas bonus, overtime pay, or commission check, the IRS is legally clear to take the entirety of that payment as long as you have already received the exempt amount for your pay schedule.

Scenarios and Examples

This plays out differently for everyone; since the exempt amounts are set numbers versus percentages, those who earn less may see less of their wages go to garnishment. However, those who earn a substantial amount of money could lose most of their paychecks to the IRS. Take a look at these example calculations based on the IRS’s 2024 wage garnishment exemptions:

• Single filer with zero dependents paid biweekly: May keep $561.54 of each paycheck
• Head of household filer with three dependents paid monthly: May keep $3075.01 of each paycheck
• Married filing jointly with two dependents paid semimonthly: May keep $1633.33 of each paycheck
• Married filing separate with one dependent paid weekly: May keep $376.92 of each paycheck

This obviously has the potential to affect taxpayers in different ways, depending on their income. Assume that the person in the first example makes $16 per hour, New York’s minimum wage. They work 80 hours per pay period. This comes out to a gross payment of $1280, and assuming 25% is withheld for required taxes, their usual take-home paycheck would be $960. As the exempt amount is $561.54 in their situation, the IRS gets to take nearly $400 from their take-home pay.

How to Prevent Wage Garnishment

The earlier you take steps to prevent wage garnishment, the more options you have available to you. The IRS prefers to collect taxes in the easiest way possible, and going through extensive notification periods and levy procedures costs them time and money. Levying wages or other assets is often a last resort.

If you have a better way to pay off your tax debt, they may be willing to work with you. Even after they have started garnishing your wages, they are likely to accept reasonable offers you make but keep in mind that once the garnishment starts, it can be hard to stop. For best results, try to make arrangements before the IRS resorts to wage garnishment.

Some payment options that may be available to you include:

• Installment agreement: The IRS supports short-term and long-term installment agreements. Short-term payment plans allow you to pay off your tax debt in 180 days or less, while long-term plans give you up to 72 months (longer in some cases). Depending on how much you owe, you may be able to apply online and get an answer immediately.
• Partial payment installment agreement: To qualify for an installment agreement, you must be able to make the minimum payment—which is approximately your total amount due divided by 72. If your financial situation doesn’t allow you to make that type of payment, you may qualify for a partial payment installment agreement. You pay a smaller amount equal to what the IRS believe you can afford until the Collection Statute Expiration Date.
• Offer in compromise: Those whose income and assets are limited enough that payment in full is not an option may qualify for an offer in compromise. Those approved for this option pay a smaller amount to settle their tax debt. You either pay in one lump sum or make monthly payments until the agreed upon amount is paid.
• Currently not collectible: When taxpayers find themselves in a financial position where they cannot make any progress on their tax debt, they may qualify for currently not collectible status. This essentially puts a pause on the IRS’s collection actions until your financial situation changes or the Collection Statute Expiration Date passes. Plan on providing updated financial information to the IRS on a regular basis so they can verify whether or not you still qualify for this status.

Your Rights When Facing Wage Garnishment

You do have rights when your wages are being garnished. If the garnishment is causing you and your family financial hardship, you may be able to have the levy released. This does not mean that the amount you owe goes away—you still owe the same amount, but the IRS will not continue garnishing your wages to collect it.

If you’re losing enough to wage garnishment that you’re unable to provide for your family, you may want to work with a tax attorney to prove that you’re experiencing financial hardship due to the garnishment.

You also have the right to be notified of the garnishment 30 days before it goes into effect. At the same time the IRS notifies you of their intent to garnish your wages, you must also be notified of your right to request a Collection Due Process or equivalent hearing. If the IRS fails to send this notice or sends it less than 30 days before they begin garnishing your wages, you may be able to have the levy released. There are just a few exceptions to this rule.

Negotiating an Alternative to Wage Garnishment

This may seem overwhelming, but the fact is that the IRS is generally open to a variety of payment arrangements—they just want to collect what they are owed. Remember, though, the earlier you begin exploring payment options, the more flexibility you have. Once the garnishment is in place, you could be stuck losing a substantial portion of your income for weeks or months until the IRS considers your proposal.

Figuring out which of the payment arrangements we discussed earlier is best for your situation can be challenging. While an installment agreement is generally easy to approved for, it isn’t always the best option for taxpayers—particularly those of limited means or those who will struggle to make the minimum payment every month. That’s why we recommend talking to a tax professional if you are trying to avoid wage garnishment. If your financial documents show that you have limited asset and income, you may get more relief from an offer in compromise or PPIA than you would from an installment agreement.

Best Practices for Compliance

Once you have addressed your current tax debt, it’s important to look at your financial situation as a whole to figure out how you ended up behind in the first place. Future compliance is crucial, not just for your financial wellbeing, but often for your payment arrangements.

For example, if you incur additional unpaid tax debt while on an installment agreement, you risk defaulting on your installment agreement. If you do not comply with the terms of your offer in compromise, the IRS may require you to pay the remaining amount in full. Some of the best ways to remain compliant include:

• Check your withholdings or estimated tax payments: If your initial tax debt accrued because your withholdings were inaccurate or you didn’t pay enough in your quarterly tax payments, that’s fairly easy to resolve. You can speak with your HR department or your accountant to adjust those numbers going forward.
• Check your mailing address with the IRS: You don’t want to miss important mailings from the IRS, particularly if they’re letting you know that there’s a pending levy. Log into your IRS account and ensure that your contact information is up to date.
• Work with a tax professional if you have an unusual tax situation: If you have anything other than a straightforward W2 job, you may want to work with a CPA year-round to ensure that you don’t get bogged down in overdue taxes. For example, if you work multiple jobs, have a side hustle, have multiple streams of income, or bring in a passive income, your tax needs may be entirely different than those of someone who works a standard W2 job. An accountant who can monitor your financial situation can make the necessary changes to your quarterly payments and deductions.
• File your taxes on time: The failure-to-file penalty is much higher than the failure-to-pay penalty, so you can curb any future potential tax debt by at least filing on time.
• Pay taxes immediately when they are due: Ideally, you won’t owe anything because you’ve properly adjusted your withholdings or made estimated payments—but if you do, pay by the deadline to avoid further issues with the IRS.
• Respond to all notices in a timely manner: If you receive any further communications from the IRS, read them in full immediately and respond as necessary.

Wage garnishment is one of the most feared outcomes of overdue tax debt, but you can avoid it by responding to IRS notices, making arrangements to pay your tax debt, and working with a tax attorney to explore your options in full. When you’re ready to take action, the team at Timothy S. Hart Law Group is here to help. Call our Albany office at 518-213-3445, call our New York City office at 917-382-5142, or reach out online to set up a consultation.