What Is a Tax Garnishment and How Do You Stop One?

A tax garnishment is a legal tool used by government agencies, such as the Internal Revenue Service (IRS) or state tax departments, to directly seize a taxpayer’s income or assets. This action is taken to recover unpaid tax debts when other collection efforts have not been successful. Understanding tax garnishments is important for individuals, as they can have immediate financial implications.

Defining Tax Garnishment

Tax garnishment is a legal procedure where a government tax authority seizes a taxpayer’s assets or income directly from a third party to satisfy a tax debt. Unlike other creditors, the IRS does not typically need a court order to initiate a garnishment. This action is generally undertaken after prior attempts by the tax authority to collect the debt have not resulted in payment.

A tax levy is a broad term for the legal seizure of property to satisfy a tax debt, with wage garnishment being a specific type of tax levy. While “wage garnishment” and “wage levy” are often used interchangeably, a wage garnishment specifically refers to the IRS taking a portion of a paycheck. The IRS sends a notice to the third party, such as an employer or bank, instructing them to withhold and send funds directly to the tax authority.

Circumstances Leading to Tax Garnishment

Tax garnishment is generally a measure of last resort for tax authorities, employed when taxpayers have not responded to repeated attempts to resolve outstanding tax liabilities. A primary reason is the failure to pay assessed income taxes, whether federal or state. Businesses that neglect to pay payroll taxes or fail to remit withheld employment taxes can also face garnishment actions.

Another common trigger is the failure to file required tax returns. Even if no tax is immediately due, unfiled returns can prevent the tax authority from accurately assessing liability, eventually leading to collection actions. Taxpayers typically ignore multiple notices and demands for payment sent by the tax authority before garnishment.

A previously established payment agreement, such as an installment plan, can also lead to garnishment if the taxpayer defaults on its terms. The tax authority generally sends a “Final Notice of Intent to Levy and Notice of Your Right to a Hearing” at least 30 days before initiating a garnishment, providing a final opportunity to address the debt.

Methods of Tax Garnishment

Tax authorities employ several methods to execute garnishments, targeting different types of assets or income. One common method is wage garnishment, also known as a wage levy. The tax authority contacts the taxpayer’s employer directly, requiring them to withhold a portion of the employee’s wages and send it to the tax authority. This process continues each pay period until the debt is satisfied or a resolution is reached. The amount garnished depends on factors like filing status and dependents, but the non-exempt portion can be entirely claimed by the IRS.

Another frequent method is a bank levy, which allows the tax authority to seize funds directly from a taxpayer’s bank account. When a bank receives a levy notice, it typically freezes the funds in the account up to the amount owed, including penalties and interest. The bank holds these funds for a period, often 21 days, before remitting them to the tax authority, allowing the taxpayer a brief window to seek a release. Unlike wage garnishments, a bank levy is generally a one-time event; for further seizures, the process must be repeated.

Social Security benefits can also be subject to garnishment for unpaid tax debts. The IRS is authorized to levy up to 15% of each Social Security payment for overdue federal taxes until the debt is paid. While Social Security benefits are protected from garnishment for many other types of debt, tax debts are a specific exception. Other assets, such as accounts receivable, commissions, or even certain property like vehicles or real estate, can also be subject to levy, although wage and bank levies are the most common.

Navigating a Tax Garnishment Notice

Upon receiving a tax garnishment notice, immediate action is important. The notice, often labeled as a “Final Notice of Intent to Levy and Notice of Your Right to a Hearing,” will clearly state the issuing agency, the specific tax period for which the debt is owed, and the exact outstanding liability. Review these details carefully to ensure accuracy.

The next step involves verifying the accuracy of the debt and the tax period mentioned in the notice. Errors can occur, and confirming the validity of the claim is a foundational step. You have specific rights, including the right to challenge the garnishment or explore alternatives, which are often outlined in the notice itself. The notice generally provides a 30-day window to respond before the garnishment begins.

Initiating contact with the issuing tax authority, whether the IRS or a state tax department, is a necessary step. This contact allows for confirmation of the garnishment, a deeper understanding of the specific process, and an inquiry into the precise outstanding balance. This helps determine the most appropriate path to resolution.

Pathways to Resolution

Once a taxpayer has processed a garnishment notice and verified the underlying debt, several pathways exist to resolve or stop the action. The most direct way to halt a garnishment is to pay the tax debt in full, which compels the tax authority to release the garnishment.

If full payment is not immediately feasible, establishing an installment agreement with the tax authority is a common resolution. This involves negotiating a monthly payment plan to pay off the tax debt over an agreed-upon period. To qualify, taxpayers typically need to file all required tax returns and provide financial information to demonstrate their ability to make consistent payments. The garnishment can be released if the terms of the installment agreement dictate it.

Another option, for those who cannot pay their full tax liability, is an Offer in Compromise (OIC). An OIC allows a taxpayer to settle their tax debt for a lower amount than what is owed, typically when there is doubt about the ability to collect the full amount or if paying the full amount would create significant financial hardship. Eligibility for an OIC requires current tax filings and often an initial payment with the application.

Taxpayers also have the right to appeal a garnishment, particularly if they believe the assessment is erroneous, if the levy causes economic hardship, or if they qualify for spousal relief. An appeal, such as requesting a Collection Due Process (CDP) hearing, must generally be filed within 30 days of receiving the final notice of intent to levy. This process can temporarily suspend collection activities while the case is reviewed. Once a resolution is reached, the tax authority will typically issue a release to the employer or bank, ending the garnishment.