A Guide to Dealing with Wage Garnishment for Unpaid Taxes

If you’ve fallen behind on your taxes, you’re not alone. Many Americans struggle to pay their tax bills. And when you get really behind, the IRS has tools to collect what you owe—including wage garnishment for unpaid taxes.

The idea of losing part of your paycheck before it even hits your bank account can feel overwhelming. Fortunately, you have options to take control of the situation and protect your finances.

What Is Wage Garnishment for Unpaid Taxes?

When you owe taxes to the IRS and fail to pay or make arrangements with them, they can garnish your wages through a wage levy.

Unlike private creditors, the IRS doesn’t need a court order to start garnishing your wages. Instead, they send you a notice that gives you a brief window to respond or resolve the debt. If you don’t, they can begin taking a portion of your paycheck.

The amount the IRS can garnish depends on your income and the number of dependents you have. The agency uses a formula to calculate how much of your wages are “exempt” from garnishment.

They do this to make sure you keep a minimum amount to cover basic living expenses. But the amount you’re left with might still be much lower than you need to stay afloat.

Can State Tax Authorities Garnish Wages Too?

Yes, state tax agencies also have the power to garnish wages for unpaid state taxes.

The process varies by state, but most state agencies actually require less notice than the IRS. So depending on where you live, you might face both federal and state wage garnishments at the same time.

What Happens if I Ignore Wage Garnishment?

Ignoring wage garnishment for unpaid taxes can lead to even more severe consequences. The IRS can escalate their collection efforts by:

  • Filing a lien against your property.
  • Seizing funds from your bank account, and
  • Levying other assets, like your home or retirement accounts.

If you owe back taxes, it’s critical to address the issue as soon as possible to avoid these outcomes.

What Are My Options to Stop IRS Wage Garnishment?

The good news is you don’t have to accept wage garnishment as inevitable.

There are a number of ways to address unpaid taxes and stop the IRS from garnishing your wages:

1. Pay the Tax Debt in Full

The quickest way to stop wage garnishment is to pay the full amount you owe, including penalties and interest. If you have the resources, this immediately ends the garnishment and clears your tax debt.

However, for most people, paying the entire balance upfront isn’t realistic. If you had the money on hand to pay the debt easily, you likely already would.

2. Set Up a Payment Plan

The IRS offers something called Installment Agreements, which allow you to pay off your tax debt over time in manageable monthly payments.

But be aware of a few pitfalls:

First, the payment plan doesn’t stop interest and penalties from growing. Those will continue to increase over time, which means you could end up paying significantly more than you originally owed.

In addition, installment agreements don’t necessarily stop federal tax liens, which means the government can still seize your assets and sell them to pay off your debt. If you have a lot of debt, this could be a serious risk.

3. Apply for an Offer in Compromise

If you’re unable to pay the full amount you owe, you might qualify for an Offer in Compromise (OIC).

This program allows you to settle your tax debt for less than the full amount if you can show how paying the full debt would cause serious financial hardship.

While this can be a great option, it’s hard to qualify for an OIC. (Approval rates usually range at about 28% to 32%.)

5. Prove Additional Financial Hardship

If wage garnishment leaves you completely unable to cover basic living expenses, you can request a Currently Not Collectible (CNC) status.

This temporarily halts collection efforts, including wage garnishment. While this won’t eliminate your tax debt, it can give you breathing room to work out a more permanent solution.

Best Bankruptcy Lawyers Memphis TN4. File for Bankruptcy

Bankruptcy offers an end to wage garnishment, full stop. Filing for bankruptcy triggers an automatic stay, which stops collection actions, including wage garnishment. From there you have a couple of options:

First, Chapter 13 bankruptcy helps you reorganize your tax debt into a manageable repayment plan, while saving your assets and protecting you from your creditors moving forward.

And then secondly, in some cases, older tax debts may be discharged entirely under Chapter 7.

If you’re struggling with tax debt and are considering bankruptcy, you should speak with a qualified bankruptcy attorney about your options. Look for someone with special experience in tax debt.

Why Work with a Bankruptcy Lawyer?

Dealing with the IRS can be intimidating, let alone when they’re garnishing your wages.

As a bankruptcy lawyer with decades of experience in tax debt, I can help you explore all your options. Having a trusted professional on your side can make all the difference in stopping wage garnishment and finding the right path forward.

We work with you to make a plan based on your specific situation and goals – and we see your case through all the way to the end.

If you’re facing wage garnishment for unpaid taxes, don’t wait to act. Contact me today for a free consultation, and let’s work together to protect your paycheck and your future.