The maximum amount a judgment creditor may garnish from a paycheck is 25%, but the IRS is not subject to state exemption laws and they may garnish almost all of a person’s paycheck.

In fact, IRS wage garnishments are not really based on what they can take as much as it is on what the taxpayer is allowed keep.

For example,  in 2015 a single parent of two kids who files as Head of Household may protect only $409 of wages per week. If they earn $1,000 per week, the IRS garnishes $591.  If that same parent earns $2,500 per week, the IRS garnishes $2,091.  Instead of placing a limit on the percentage of wages the IRS may take, the federal tax laws simply establish a flat amount they IRS cannot take.

What should you do if you receive an IRS Wage Levy?

Fill out an IRS Collection Statement.

The IRS can reduce the amount of the wage garnishment if you complete an Collection Information Statement, IRS Form 433-A.  Until you complete and submit this form, the IRS has no clue if you are single or married or a parent or disabled.  This form allows you to enter your monthly income and expenses.  The IRS will set your monthly deductions based on your income level and the number of people in your household for most expenses, but certain expenses, such as medical expenses, will be allowed in full if you can document the expense.

Call the IRS to set up an Installment Agreement.

After completing form Form 433-A, call the IRS to set up a payment agreement.  Hopefully the amount Form 433-A says you have to pay is less than what the IRS is currently garnishing.  If you are unable to complete the form the IRS will work with you over the phone to complete the schedule.  Call the IRS at 1-800-829-1010 to set up the payment agreement.

What if you call a crabby IRS agent who makes you uneasy?  Just hang up the phone and call back a few minutes later.  A different person will answer the phone.  In life, some people are nice and helpful, and some are . . . something else.  Find a nice person who will help you.  Most folks at the IRS are nice and helpful.  Some are . . . something else.

File Chapter 7 Bankruptcy.

Individual income taxes that were filed by you more than 3 years ago can probably be discharged in a Chapter 7 bankruptcy case.  It is important to know when the taxes were filed, whether an extension to filing the taxes was filed, and whether the taxes were filed by you or by the IRS.  If the IRS filed a substitute return because you did not file a tax return, the bankruptcy will not discharge he tax.

File Chapter 13 Bankruptcy.

In cases where your income is too high to qualify for chapter 7 or in cases where the taxes cannot be discharged in chapter 7, you may want to consider filing chapter 13.  In a chapter 13 case the tax debt that cannot be discharged may be paid back at a minimal interest rate (3%) over 3 to 5 years.  Filing Chapter 13 will stop the wage garnishment and a monthly payment to the court trustee will be based on your real living expenses instead of the IRS budget guidelines.

Get a Transcript of the Taxes You Owe.

Nebraska bankruptcy attorneys must be certain of what type of tax you owe, the day the tax was filed, the assessment date of the taxes, and the identity of the person who filed the taxes.  To verify this information we obtain an Account Transcript from the IRS.  You can get an Account Transcript by the calling the IRS and requesting an account transcript of each year you owe taxes or you can complete IRS Form 4506 and fax or mail that to the IRS.

In the Omaha area the IRS office is located at 16th & Capital Street and in Lincoln, Nebraska the IRS is located at 15th & O Street.  These forms may be obtained for free at either location and you may speak with an IRS Revenue Officer to establish a payment plan.  Don’t be afraid, they are nice people.

Image courtesy of Flickr and Ryan.