If you owe money to the IRS due to back taxes or unfiled tax returns, one of the ways that Uncle Sam can get his due is by garnishing your wages.
However, it doesn't have to end in this step.
In fact, wage garnishment is something of a “last resort” before you find yourself faced with the possibility of going to jail. If you want to stop IRS wage garnishment, you can plan ahead.
The IRS will send you letters months prior to garnishing your wages, so you can't say you weren't warned. And you can even put a stop to IRS wage garnishment before you get to the letter stage if you take the time to address the problem now.
Stop Garnishment of Wages Before It Starts
Your best defense against IRS wage garnishment is to avoid it in the first place. Even if you can't pay your tax bill or don't file your tax return on time, you have options. Here are some ways to avoid wage garnishment to begin with:
- Installment plan: The IRS actually offers you the ability to make installment payments. If you can't pay your taxes, and if you owe less than $50,000 in taxes and penalties, you can suggest an installment plan. This is considered a loan from the IRS, and you will be charged an administrative fee (it's not very large), and interest (usually less than a credit card interest rate). You can apply for an installment plan online, and if you are accepted, your payments are more manageable, and you avoid wage garnishment.
- Offer in Compromise: If you can prove that you won't be able to pay the full amount, you can make an Offer in Compromise (OIC). Before you take this step, though, make sure you understand what it entails. In many cases, the IRS will reject your offer if it doesn't seem “reasonable.” Consult a tax attorney before going this route. Such a professional can guide you through the pitfalls.
- Poverty: After you receive your wage garnishment letter — but before the garnishment starts — you can claim that you are too poverty-stricken to make the payments. In many cases, the IRS is willing to hold off if the wage garnishment will cause financial hardship. However, once your situation improves, you will back on track for garnishment if you don't work out a plan.
You can also sell assets to raise the money to pay what you owe. You'll have to consider the situation, and decide what will work best for you.
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How to Stop Wage Garnishment Underway
If your wages are already being garnished, you can put a stop to it (called getting a wage levy release) with the right approach. The quickest and easiest way to stop IRA wage garnishment is to pay off the debt and move on. But there are also some other things you can try:
- Settlement: With the help of a tax debt attorney, you might be able to work out a tax settlement. You pay a lump sum — less than you owe — and the rest of the tax debt disappears. With a settlement, your wage garnishment issues disappear.
- Leave your job: Realize that when the IRS garnishes your wages, it makes arrangements with your employer. This means that when you leave your employer, a new arrangement needs to be made. If you leave your job and don't find a new job, you won't have income to be garnished. If you find a new job, the IRS will need to take a few months to set up a new garnishment agreement with your new employer. While this doesn't solve the problem completely, it can provide relief for a temporary period of time.
- Declare bankruptcy: A bankruptcy will actually put a stop to IRS wage garnishment — at least temporarily. It's important to realize that tax debt is one of the obligations that can't be discharged by bankruptcy. Eventually, you will have to face your tax debt, and the IRS can start garnishing your wages again later. Plus, bankruptcy will destroy your credit (and it will take a long time to repair your credit after bankruptcy), and it comes with other financial consequences.
In many cases, your best option is simply to avoid getting into trouble in the first place. File your tax return each year, and pay your taxes. If you are in a position where you can't pay, don't let the tax debt pile up over time. Instead, be proactive, looking for ways to arrange payment with the IRS before it comes to wage garnishment.