The IRS has the authority to garnish your wages, and if you can’t pay off your debt all at once, they may place a non-contingency levy on your bank account. But this might not be the end of it. Even if you get an exemption from the IRS for whatever reason, any setoff or refund collected will be subject to a 10% federal withholding tax unless other exemptions are in place. This means that when you’re receiving payment for something like a back paycheck or social security payment (exempt), the money will already have been taxed before it reaches your wallet.
IRS garnishments are a last resort, and they are not to be taken lightly because they directly result from tax debts. When it comes to IRS tax debt, this is referred to as a statutory levy, which means that the IRS is authorized by law to collect a set percentage of your wages until the debt has been paid in full. If you’re working a 9-5 job forty hours a week, this can quickly add up and sometimes is more than you can pay off in one lump sum with your income alone.
If you want to get out from underneath an IRS garnishment, you might not need to wait for an exemption or your income tax refund – depending on what kind of debt is holding up your federal accounts. If your IRS file is frozen, you can also ask for an automatic stay and stop the garnishment.
The best option is to file for bankruptcy right away. An automatic stay will be put in place, and the IRS cannot take funds from your bank accounts or with a writ of execution (which the IRS can do). Suppose you’re under the age of Chapter 13. In that case, it’s a good idea to speak with an experienced bankruptcy lawyer about filing your federal tax returns while adding bankruptcy to your Chapter 13 filing. This gives you time to work on paying off any debt without paying taxes on money already being taxed before it even reaches your hands. It’s a great time to make changes, including stopping automatic withdrawals from your bank account for any debts levied against you.
If you’re filing an application for bankruptcy, you should file a ‘Motion to Discharge Debtor’s Possession’ and request an open inventory. This will give the bankruptcy court authority over all accounts under judgment for debt. Ask your attorney what potential problems might be associated with this move and how to avoid them with a good set of instructions.
A writ of execution is essentially a government order allowing the IRS to take money from your bank account. There are situations where the IRS can do so without getting approval first. To learn more about any procedures involved with this, speak with an experienced bankruptcy lawyer who can help you make a strategic decision.
More than half of all debt collectors are hired by the US government to collect debts owed in federal court, and they can use any legal means necessary to secure payment. Since most of these cases are handled under conditions that make it difficult to dispute debts, you may find yourself served with a notice of levy or notice and demand for payment instead of the traditional garnishment.