If you've got an IRS letter on your desk right now, you have a decision to make, and the clock matters. I'm Darrin Mish. I've spent 32 years helping people with exactly this kind of situation. Here's what you should do.
The Internal Revenue Service has the ability to take part of your paycheck in the form of wage garnishment. Sometimes you may hear a wage garnishment called a wage levy, and unlike a bank levy, a wage garnishment can last for many years. In other words, if your tax issues are left unaddressed the IRS can garnish your wages to make up the difference for many years to come.
The IRS can be a ruthless creditor. The IRS can garnish your wages and take part of your paycheck without an outside court judgment. The IRS is a tougher adversary in another sense – consumer protections mean that private creditors have tighter limits within which they can garnish your wages. Many of those limits are gone or severely limited for the IRS.
Individual states typically set their own limitations for how much money the IRS can take from you in the form of a wage garnishment. States set their own rules, but in terms of federal rules for regular creditors, the upper limit on what they can garnish is usually 25% of your paycheck. The IRS can, and often do, take much more of your net pay.
After the IRS issues its demand for payment and issues its intent to levy notice then your employer may ultimately be compelled to hand over part of your paycheck to the Internal Revenue Service. The amount that the IRS can garnish will ultimately be contingent on the total amount of taxes that you owe but having to pay 50% or more of your paycheck to the IRS in the form of wage garnishment isn’t unheard of.
If the IRS didn’t give you 30 days to respond to the levy notice or if you declare bankruptcy then you might be able to stop wage garnishment.