How to Stop Tax Garnishment and Resolve Your Tax Debt

Tax garnishment is a collection action taken by tax authorities when individuals or businesses fail to pay their outstanding tax debts. It involves the seizure of assets directly from a taxpayer to satisfy a liability. This can be a wage garnishment, where a portion of an individual’s earnings is withheld by their employer and sent to the taxing authority, or a bank levy, which involves the seizure of funds from a bank account. Federal payments, such as Social Security benefits, can also be offset. This article provides actionable steps to navigate and resolve tax garnishment.

Initial Steps and Information Gathering

Upon receiving a tax garnishment notice, immediate action is crucial; ignoring it can lead to further financial distress. The Internal Revenue Service (IRS) and state tax agencies send several notices before initiating a garnishment, including a Notice of Intent to Levy. This final notice usually provides a 30-day window before collection actions begin, offering an opportunity to respond.

The garnishment notice contains essential details needed to address the situation effectively. Taxpayers should identify the type of garnishment, the specific tax years involved, the amount owed, and the issuing authority.

Gathering personal and financial documents is the next crucial step. This documentation includes income statements (such as pay stubs or profit and loss statements for self-employed individuals), detailed records of monthly living expenses, bank statements, investment account statements, and previous tax returns. These documents provide a comprehensive financial picture, which is foundational for exploring various resolution options.

Resolving the Tax Debt or Establishing a Repayment Plan

Addressing the underlying tax debt is the most direct way to stop a garnishment. Paying the tax liability in full immediately halts collection actions, including garnishments. This option provides the quickest resolution and prevents further penalties or interest from accruing.

If full payment is not feasible, an Installment Agreement (IA) offers a structured repayment plan, allowing taxpayers to make monthly payments over an agreed-upon period, typically up to 72 months. To apply for a federal IA, taxpayers use IRS Form 9465, Installment Agreement Request. The application requires detailed financial information, including current income, monthly living expenses, and a summary of assets and liabilities. This information helps the IRS determine an affordable monthly payment amount.

An Offer in Compromise (OIC) allows taxpayers to settle their tax debt for a lower amount than what is owed. The IRS evaluates OIC applications based on the taxpayer’s ability to pay, income, expenses, and asset equity. There are three grounds for an OIC: doubt as to collectibility (the taxpayer cannot pay the full amount), doubt as to liability (there is genuine uncertainty about the amount owed), or effective tax administration (collecting the full amount would cause significant economic hardship or be unfair). Preparing an OIC application, such as federal IRS Form 656, Offer in Compromise, requires extensive financial disclosure. A non-refundable application fee, typically $205, is usually required, though it can be waived for low-income applicants.

Currently Not Collectible (CNC) status provides temporary relief from collection efforts due to financial hardship. If the IRS determines that a taxpayer cannot meet basic living expenses while also paying their tax debt, collection activities may be suspended. To qualify for CNC status, taxpayers must demonstrate an inability to pay, often by providing a comprehensive financial statement detailing income, expenses, assets, and liabilities, usually on IRS Form 433-A or 433-F. While in CNC status, the debt does not disappear, and interest and penalties continue to accrue, but active collection attempts, such as levies and garnishments, are paused. The IRS reviews these cases periodically, and collection efforts may resume if the taxpayer’s financial situation improves.

Challenging the Garnishment or Liability

Taxpayers also have avenues to challenge the garnishment itself or the underlying tax liability. A Collection Due Process (CDP) hearing offers an opportunity to dispute a collection action or to propose collection alternatives. A CDP hearing can be requested after receiving a Notice of Intent to Levy or a Notice of Federal Tax Lien. To request a CDP hearing, taxpayers file IRS Form 12153, Request for a Collection Due Process or Equivalent Hearing, within 30 days of the date on the notice. During the hearing, an impartial settlement officer reviews the case, allowing the taxpayer to present arguments, challenge the tax liability, or propose a resolution like an installment agreement or an Offer in Compromise. Requesting a CDP hearing can suspend collection activities while the appeal is pending.

Innocent Spouse Relief is an option for individuals who should not be held responsible for tax liabilities arising from a joint tax return. This relief is available when one spouse significantly understated income or claimed improper deductions without the other spouse’s knowledge. To apply for federal innocent spouse relief, taxpayers file IRS Form 8857, Request for Innocent Spouse Relief. The application requires detailed information supporting the claim, including documentation demonstrating that the requesting spouse was unaware of the errors or that it would be inequitable to hold them liable. Different types of innocent spouse relief exist, each with distinct eligibility criteria. Generally, requests for innocent spouse relief should be filed within two years of the first IRS collection attempt.

Submitting Your Resolution or Challenge

Once forms and supporting documentation are prepared, submit the resolution or challenge to the appropriate tax authority. For federal tax matters, submission methods for forms like IRS Form 9465, Form 656, Form 12153, or Form 8857 include mailing the completed package to a specific IRS address. Taxpayers should consult the form instructions or the IRS website for the most current mailing addresses.

After submission, taxpayers should anticipate a processing period, which can vary significantly depending on the type of request. For instance, an Installment Agreement request might be processed within a few weeks, while an Offer in Compromise or an Innocent Spouse Relief claim can take several months, ranging from six months to over a year, due to the comprehensive review required. The IRS sends a confirmation or acknowledgment of receipt. It is advisable to keep copies of all submitted documents and proof of mailing for future reference.

If the garnishment continues despite submission, immediate follow-up with the tax authority is necessary. This may involve contacting the specific department or agent assigned to the case. Maintaining communication and providing any requested additional information promptly can help resolve delays and ensure the garnishment is paused or released while the request is under review.