What is Tax Garnishment and How to Keep Track of It

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Tax garnishment is a collection process that can be used to get money from someone who owes taxes but won’t or can’t pay them. These measures are taken by the Internal Revenue Service (IRS) when it feels that a taxpayer has not paid his fair share of taxes and has neglected to pay up or offer acceptable payment terms. This article details tax garnishment, how it works, and what you can do to avoid being subject to such measures.

What is Tax Garnishment?

Tax garnishment is the enforcement of unpaid tax debt by collecting a specific percentage of the taxpayer’s wages, bank account, or other assets. If you are delinquent on your taxes, the IRS can garnish your wages, bank account, or other assets to collect the debt. However, they can only legally garnish up to 25% of your wages. At the federal level, garnishment is also used to collect child support, delinquent student loans, and delinquent HSA withdrawals.

How Does Tax Garnishment Work?

The IRS begins with a notice of a tax lien, which is a public record of your tax debt and the fact that you have not paid it. The IRS can also issue a notice of intent to levy (known as a NIL). The NIL is a warning that the IRS intends to garnish your wages or other assets. This can be avoided by paying the debt, entering into a payment plan, or contesting the issue in court. Once the NIL is issued, all assets you own that can be easily converted to cash are subject to tax garnishment. This includes cash in bank accounts, stocks and bonds, real estate, or any other assets that are easily convertible to cash. However, the IRS can only collect 25% of your net wages, and the NIL must be sent to your employer before the garnishment can begin.

When Can the IRS Garnish Your Accounts?

The IRS can garnish your bank account or wages if you are behind on your taxes. If you are owed a tax refund, the IRS can also garnish the refund if you have an outstanding tax liability. If you receive a notice from the IRS that you owe a tax debt, you should take it very seriously. It’s common for the IRS to issue a notice of deficiency, which means you’re behind on your taxes. Some taxpayers receive a letter stating they owe a tax debt, but it isn’t from the IRS. These are called “phantom” IRS notices. The phantom notices are usually part of a scam that attempts to trick you into paying fake tax debt.

Strategies to Avoid Being Subject to Tax Garnishment

If you are faced with a tax bill, the best strategy is to pay it as soon as possible. You can also set up a payment plan with the IRS to pay your taxes over time. Taxpayers facing potential garnishment have a few options to avoid a tax garnishment. First, you should try to get ahold of any proof of income you may have. This can include W-2 forms, 1099 forms, and other signed contracts that document your income.

You should also record all deductions and expenses claimed on your taxes. Second, you should try to locate any assets that you would be in danger of losing to tax garnishment. This can include savings accounts, stocks, bonds, or any other account with money. Finally, you can contact the IRS and try to set up a payment plan.

For many Americans, tax debt is a major financial and emotional issue. The IRS can and will garnishee your wages, bank account, or other assets to collect the money you owe. While not all states allow this, it’s certainly possible that they will. The good news is that there are ways that you can protect your assets from potential garnishment.

By Brooke Chaplan
who is a freelance writer and blogger. She lives and works out of her home and residing in Los Lunas, New Mexico. Her first passion is journalism, but she also loves hiking and gardening. Brooke highly recommends talking to a professional about tax garnishment solutions.

Member since October, 2019
View all the articles of Brooke Chaplan.